No VAT till 2021, but Kuwait’s debt swamp forcing direct business taxation

July 1, 2018 8:00 am


With every new sunset over Kuwait City skies comes a surprising new business tale spun for the Gulf country.

Some of it is balmy, most of it is stormy, but always reflecting the fighting spirit of Kuwait and its rise in investors’ eyes, both figuratively and literally.

Related: Kuwait delays VAT to 2021, becomes 1st GCC country to relax reforms

More debt financing

Kuwait’s parliament on Wednesday passed the budget for the 2018-2019 fiscal year, projecting a huge deficit for the fourth year in a row amid a shrinking economy, according to ArabNews.

The shortfall for the accounting year, which began in Kuwait on April 1, is estimated at more than $21 billion.
The actual deficit may turn out to be lower than forecast with crude currently calculated at about $50 a barrel, $25 below market prices.

State budget revenues are projected at $49.5 billion, up 12 percent on last year’s estimates, while spending is forecast to reach $71 billion, about 8.5 percent more than 2016/2017.

“After posting healthy surpluses for 16 straight years, Kuwait has posted a budget deficit in each of the past three years after oil prices began to slide in mid-2014,” said Arab News as Kuwait’s economic growth contracted by 2.9% last year due to low oil prices.

Oil income in Kuwait is estimated at $44.3 billion, based on a daily production of 2.8 million barrels.
Less than a fifth of expenditures are slated for development projects.

Read: Does Index Inclusion in FTSE, MSCI answer Kuwait, Saudi liquidity needs?

No VAT but business taxation coming

Zawya reported Arab Times as saying that A new round of talks between concerned Kuwaiti governmental bodies and representatives of the private sector will begin soon to determine the best way to impose the previously agreed 10 percent tax on local companies, quoting sources from Ministry of Finance.

“They explained that the discussions during the meetings will include reducing the tax to be imposed on foreign companies by five percent in order to equalize foreign companies with local ones in this regard,” said Zawya.

“The sources said implementation of Value Added Tax (VAT) has been postponed to 2021 in order to give the local market, traders and consumers an opportunity to be familiar with the changes the tax will bring about and its effects.”

Also, a form of an excise tax on harmful products like cigarettes will be imposed with revenues from these expected to reach  $660 million.

The sources revealed that the total revenues from tax collected in 2017/2018 in the form of customs tax, and a tax imposed on local companies, reached $1.85 billion.

Meanwhile, another source from the Ministry of Finance said oil revenues reached approximately $40 billion.

The source affirmed that the total expenditures reached $58.44 billion.

Read Kuwait: A compelling story of entrepreneurship growth despite weak support

Fighting spirit  

US Navy Institute (USNI) reported Boeing being awarded a $1.5 billion contract to build 28 F/A-18E/F Super Hornets for the Kuwait Air Force.

Kuwait is buying 22 of the single-seat “E” variant and six of the two-seat “F” variant Super Hornet in a deal in the works since late 2016.

The new crafts are set to replace Kuwait’s 27 current crops of F-18C Hornet fighters.

The order represents over 7% of the country’s deficit. The country has not faced any war prospects since 1990 when former and now deceased Iraqi leader Saddam Hussein ordered the invasion and occupation of Kuwait.

Read: Dubai stocks lowest since 2016, Kuwait market on the rise

Magnet for investment

A Reuters poll found 31% of funds expected to raise their allocations to Saudi Arabian equities and 15% to reduce them, a marginally less positive ratio than the result of the previous poll.

International index compiler MSCI decided this month to upgrade Saudi Arabia to emerging market status, which is likely to attract billions of dollars of fresh foreign money next year.

The latest poll found managers were most positive about Kuwaiti equities. 62% now expect to raise allocations there and none to reduce them, the most bullish balance for Kuwait since August 2017,  compared with ratios of 23% and zero in the previous poll.

MSCI decided this month to begin considering a possible upgrade of Kuwait to emerging market status; some fund managers had not expected it to make this decision so soon. In addition, FTSE Russell has said it will start moving Kuwait to secondary emerging market status this September.

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Hadi Khatib
By Hadi Khatib
Hadi Khatib is a business editor with more than 15 years' experience delivering news and copy of relevance to a wide range of audiences. If newsworthy and actionable, you will find this editor interested in hearing about your sector developments and writing about it.



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