Kuwait is cooperating with the International Monetary Fund to discuss introducing a corporate tax for local companies, state news agency KUNA quoted Commerce and Industry Minister Abdulmohsen al-Madaj as saying.
The minister talked about the issue with visiting officials from the IMF on Monday, KUNA reported, adding that Ministry of Finance had asked the international lender to study possible tax reforms.
As part of economic reforms, the government is working on changing the tax system to diversify sources of state income and increase its non-oil revenues, KUNA added without giving any details.
Introducing a new corporate tax would be a major, politically sensitive policy shift for Kuwait, and for the wealthy Gulf oil exporters in general. So far they have relied on their oil revenues to mostly avoid direct taxation of corporate profits.
At present, Kuwaiti companies generally do not pay taxes on income, although foreign firms pay a levy on commercial activities in the country with the rate on the highest income bracket reaching 55 per cent, according to a government website.
Like the other Gulf countries, Kuwait’s state finances have been hit hard by the plunge of oil prices since last June. The budget surplus shrank 26 per cent in the nine months through December and if Brent crude stays below $60 a barrel this year, some analysts believe Kuwait could run a budget deficit or come close to it.
As a result, Kuwait has been tinkering with ways to strengthen its finances; in January, it raised state-set prices of diesel fuel and kerosene at filling stations, though it later partially reversed those hikes after public criticism of them.
The IMF has been urging Kuwait for many years to diversify its revenues through tax reforms and other steps. So far, however, political pressure from the country’s parliament, one of the most assertive in the region, has helped to block policy changes.