Wednesday 16, May 2018 by Jessica Combes

Kuwait to postpone VAT implementation to 2021


Kuwait will push ahead with introducing excise tax

Kuwait to postpone VAT implementation to 2021 according to a statement by parliament’s budget committee, adding that that the finance ministry saw the need to expedite measures for excise tax on select products such as tobacco, energy drinks and carbonated drinks, Reuters reported.

In an effort to mitigate the strain that low oil prices placed on state finances, the six GCC member states agreed to the introduction of a five per cent VAT, with two of the member states having to introduce it at the beginning of 2018; VAT in Saudi Arabia and the UAE became effective from 1 January.

Domestic political opposition, the potential negative impact on consumer spending, and the technical challenges involved in a new tax have contributed to implementation delays by the other four member countries, with none of them announcing an official date for VAT to come into effect.

While the desires of Kuwait’s budget committee to delay VAT is likely to stick, cabinet officials have called for faster tax and spending reforms.

Revenues from the new tax could be substantial; the International Monetary Fund has estimated VAT in the UAE will eventually rake in 1.5 percent of gross domestic product. However, Reuters reported that Kuwait’s state finances are among the strongest in the region and oil prices have surged in the last several months, so the Kuwaiti government has little immediate need for fresh revenues.

Gulf governments also agreed jointly to introduce an excise tax on tobacco and sugary drinks, which will raise much less money than VAT. Saudi Arabia and the UAE introduced their excise taxes in June and October 2017 respectively, in preparation for the introduction on VAT. Kuwait’s finance minister said on Monday that he expected parliament to approve the excise tax during its next session, which begins in October.

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