The government has taken practical steps to study the implementation of the idea of a selective taxation which will include tobacco and its derivatives, soft and sweetened drinks, in addition, it will be applied to expensive goods, such as watches, jewelry and precious stones as well as luxury cars and yachts – instead of a value-added tax, reports Al-Qabas daily. According to the study the application of selective taxation, on which the government is working behind the scenes will range from 10 to 25 percent.
Regarding excluding the application of value-added tax, the sources said that this option must be approved through the National Assembly, which is widely rejected by the people and parliament, which means that it is difficult to implement, in addition to the announced inflation in Kuwait of about 3 percent. The tangible amount exceeds 7 percent, that is, if the added tax law is applied, this trend may create further price hikes.
The sources expected that the government, in the event of applying the selective value tax, would earn about 500 million dinars annually, explaining that the application of the selective tax may have a large part of justice in the application, as whoever chooses goods harmful to health must pay more, given that the government spends huge money on the health programs and treatments for cardiovascular diseases, obesity and sugar resulting from smoking, soft drinks, energy and others, in addition to the fact that buying luxuries and luxury goods are not considered among the basics of living and those with money have to pay for enjoying them, as is the case in foreign countries and even Arab and Gulf countries.
The sources added that the Council of Ministers stressed the need for the Ministry of Finance to develop the tax administration in all the main required areas, such as “the journey of taxpayers, partner readiness, human resources and training, communications, operations, and information technology.” According to the Gulf agreement signed by Kuwait in November 2016, the excise tax law will be applied to tobacco products of all kinds and forms, energy drinks at 100 percent, and soft drinks at 50 percent. As for the value-added tax, it has been set at 5%, which is added to the value of the goods at the moment they are sold and collected for the benefit of the state treasury.
The study revealed that there are procedures required to apply and impose the selective tax, which are determining tax readiness through the following dimensions — legal bases, communications, willingness of partners, risk management, public response, operations, systems and program management; prioritizing areas for improvement to meet the expected launch dates for Excise Tax and Value Added Tax; reviewing and updating the legal frameworks and established policies to ensure the development of appropriate mechanisms and flexibility in case the scope of tax implementation expands in the future.
This is in addition to updating the taxpayer strategy and starting its implementation to improve the mechanism for identifying, classifying and participating taxpayers; developing a communication strategy and start implementing it to ensure public awareness among the people, taking into consideration the development of educational materials to include curricula that educate the new generation about the nature of tax, its causes and benefits; defining the partners’ readiness plan and starting its implementation to ensure the integration of data and enforcement mechanisms and developing and starting to implement a risk management strategy to address non-compliance and reduce fraud (such as defining risk standards and upgrading risk analytics and audit capabilities). Also reviewing and improving the organizational structure of the tax department, as well as reviewing employment and training plans; facilitating the administrative processes for taxpayers, such as registration, filing and payment, and ensuring alignment with legal bases and reviewing, completing and implementing the necessary requirements for the information technology system to ensure alignment with the legal foundations and re-engineered processes.
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