VAT revenue for Kuwait at 3 & 5% to equal 0.8 & 1.4% of GDP respectively
16 March 2017
For efficiency VAT must be easy to implement: Feaheny By Cinatra Fernandes Arab Times Staff
KUWAIT CITY: The Union of Investment Companies (UIC) in coordination with PwC Kuwait conducted a seminar on the topic of Kuwait taxation updates and global trends at the Kuwait Chamber of Commerce and Industry.
The seminar was hosted by PwC country Senior Partner Fouad Douglas, and featured PwC Kuwait Tax Partner Sherif Shawki, TLS Specialist in Financial Services Nadine Feaheny and Global Information Reporting Leader and Tax Director Mohamed Araji who shed light on new concepts, answered queries and discussed practical methods and the need to plan and prepare for the implementation of new tax applications.
The seminar was attended by senior officials from the Ministry of Finance, the Competent Authority responsible for implementation of taxation regimes in Kuwait, as well as representatives of other governmental authorities including the Kuwait Direct Investment Promotion Authority (KDIPA). Douglas stageo-political situation in the region and are going through a stage of uncertainty”, he remarked, adding that a country-wise economic analysis of the region may paint a nightmarish outlook for the future.
Libya, Yemen, Iraq, Syrian, Afghanistan, he shared, were all undergoing challenges and impacting the region one way or another. The oil price is another variable factor in uncertainty and pointed out that although oil producing countries decided to cut oil production and hoped for an increase in price, these efforts have failed to achieve the desired result.
As a result, economic reforms have become more urgent and have been undertaken by the lifting of subsidies. He informed that some countries have been more successful than others in this regard and stressed that populism is a major challenge in moving forward with reforms. He also highlighted that each member of the GCC had an economy different to the other.
While Saudi Arabia lifted subsidies and was struggling with a budget deficit, Kuwait finds itself in a comparatively relaxed position on account of a lower break-even point. He reiterated that the Middle East is facing tremendous challenges and taxation is coming into play not only at the regional but also worldwide with the implementation of the Foreign Account Tax Compliance Act (FATCA). The exchange of information is increasing with the evolution of taxation and Kuwait has been very active in this regard.
The Common Reporting Standard has been committed to by Kuwait, with implementation to commence at the start of 2017. Feaheny discussed tax reform developments, provided a global context and enumerated the compliance requirement. Fiscal reform is the biggest objective in the MENA. She informed that while revenue in the MENA region declined by $ 408 billion between 2012 and 2015, about 14.7% of 2015 GDP, governments are keen to use all available levers to stay ahead of the challenges by employing revenue raising measures, introducing subsidy reforms and debt raising. She shared that it is now well established that MENA countries need more revenues from taxes. Countries reliant need on oil need to diversify to overcome the threat posed by the volatility and exhaustibility of the resource.
Reforming existing revenue sources, introducing new sources through Value Added Tax (VAT), Excise taxes and corporate tax, as well as modernizing and enhancing tax administration, are among serious alternatives.
The GCC VAT framework treaty has been signed by all members and while it is now enforceable, two countries have to go live in order for it to be effective. UAE has announced an implementation date of January 2018, KSA hopes to go live in the first quarter of 2018. “For Kuwait, we are still unsure if it will be 2018 or 2019”, she said.
VAT is a tax on consumption levied at each stage in the chain of production or distribution, charged on supplies and deducted on purchases, collected by businesses on behalf of the Tax authority. She explained the legal perspective of the treaty which will be made up of general principles at the regional level and more detailed outline at the country level that may include differences in terms of sector treatment according to national economic, social and political considerations. Variances in administrative preferences are also expected among the countries.
For efficiency, she urged, VAT must be easy to implement and apply, have low compliance costs aided by high collection and self-policing with high voluntary compliance limiting the need for litigation, broad-based with limited special systems and exemptions, have proportionality and not lead to distortions. She shared VAT figures around the world and pointed out that VAT average percentage of GDP in OECD countries stands at 6.6%.
Expected VAT revenue for Kuwait at 3% and 5% would stand at 0.8% and 1.4% of GDP respectively, according to IMF calculations. She stressed that VAT is tax neutral and doesn’t affect businesses but will impact companies in terms of compliance costs, cash fl ow, and other issues. Companies will have to take into consideration the impact of time of the supply as VAT is chargeable at the earliest date of supply, issuance of an invoice or full or partial payment.
She pointed out that businesses must be aware of transitional provisions of VAT which is not applicable for supplies made before the VAT effective date but may be applicable where payment is received before the VAT effective date for supplies to be made on or after the VAT effective date, or if an invoice is issued before the VAT effective date for supplies to be made on or after the date.
She provided an overview of compliance requirements by highlighting Vat registration and the accounting records that need to be kept. She urged that there was a slim chance for fraud with VAT as invoices along the supply chain would be open to scrutiny and identified the biggest source of fraud for VAT being the shadow economy.
© Arab Times 2017