Kuwait consults IMF to introduce corporate tax as oil slumps

KUWAIT CITY — Kuwait has sought help from the International Monetary Fund (IMF) to introduce corporate taxes in a bid to diversify revenue in the face of falling oil prices, a minister said Monday.

“The IMF will prepare a preliminary report on how to impose taxes on companies in Kuwait,” Commerce and Industry Minister Abdul Mohsen Al Mudej said after a meeting with IMF representatives, the official KUNA news agency reported.

The two sides discussed ways of introducing corporate taxes for Kuwaiti and foreign companies operating in the oil-rich Gulf state after the recent introduction of a new corporate law, the minister added.

Kuwait currently imposes no taxes on local companies, Kuwaiti citizens and expatriates but it requires foreign firms to pay 15 per cent tax on their profits.

The IMF has in the past advised Kuwait to subject local companies to corporate tax as part of a series of measures aimed at boosting non-oil revenues and cutting spending.

Kuwait has posted a budget surplus in each of the past 15 fiscal years due to high oil prices but has also increased public spending from under $13 billion (12.4 billion euros) to more than $77 billion this fiscal year, mostly on wages and subsidies.

Earlier this year, the emirate stopped diesel, kerosene and aviation fuel subsidies and the finance ministry is considering similar measures for petrol, electricity and water.

Oil income contributed around 94 per cent of Kuwait’s public revenues but the sharp drop in prices is expected to substantially reduce its income.

Kuwait’s revenues in the first 10 months of the current fiscal year dropped 16 per cent to $74.5 billion compared to $88.8 billion last year, according to finance ministry figures.

In the same period, oil income dived 17.3 per cent to $68.3 billion from $82.5 billion.

The emirate is however forecast to end this fiscal year with a surplus, albeit smaller than usual, for the 16th year in a row.

The government has announced the 2015/2016 budget with a $24 billion deficit despite slashing spending by 17.8 per cent to $65.1 billion.

There are about 1.25 million Kuwaitis in the tiny gulf kingdom, in addition to 2.9 million foreigners. It pumps about 2.8 million barrels of oil per day.

Last month, Kuwait’s parliament approved a five-year development plan that envisages spending of 34.15 billion dinars ($116 billion/103 billion euros) on projects despite a sharp drop in oil prices.

The vote on the plan, which starts in April and ends March 2020, was 33-4, with one abstention.

State Minister for Planning and Development Hind Al Sabeeh said the plan is part of Kuwait’s efforts to become a regional trade and financial hub by 2035.

The plan aims to boost gross domestic product, increasing the private sector share in the economy and raising the number of Kuwaitis in the private sector, the minister added.

The private sectors share of the economy is projected to increase from 26.4 per cent at present to 41.9 per cent, Higher Planning Council officials told MPs during the debate.

Among projects envisioned is the construction of 45,000 housing units, a metro system, a railway network and a large number of mega oil projects, including a new refinery.

The plan also aims at increasing the number of Kuwaiti employees in the private sector from 92,000 to 137,000 at the end of the plan. The number of foreign workers in the sector is around 1.2 million.

Several MPs criticised the government for failing to implement the previous five-year plan, and others expressed doubts over its capability to implement the new one.

“The projects listed in the plan are fantastic and look like a sweet dream,” independent MP Abdul Hameed Dashti said. “But it is not possible to implement them because the government administration is weak.”

Shiite MP Faisal Al Duwaisan demanded that all ministers resign if they fail to implement the plan.

The government proposed the plan despite the sharp drop in the price of oil, which contributed about 94 per cent of Kuwait’s revenues over the past 16 fiscal years and which all ended in the black.

The government, which has enormous cash reserves, has insisted that the fall in revenues will not affect spending on projects.