(MENAFN - Arab Times) It is essential to reconsider the state's tax policy and "seriously consider" a tax mechanism that would increase revenues in the state's budget and also function as an effective tool of monetary and economic policy, says Kuwait Audit Bureau.
A recent bureau report said that it is now "crucial to make overall tax reforms" to overcome loopholes in implementation of the current income tax and address shortcomings affecting support of national labor." It is particularly important to do so now in view of developments in global tax systems and the shortcomings now perceived in the state's tax laws.
The report noted that most countries, of different economic systems, have tax systems to help steer their economic and social affairs in a manner that satisfies national interest. It defined tax as "a fee levied by the state on individuals and corporations and other bodies in proportion to their finances and for the aim of public good." One change proposed was imposition of tax on national companies too, while only foreign investors now pay a 15 percent tax on their net profit. "This state of affairs is both discriminatory and a damper on foreign investors' interest in opportunities in Kuwait." This also brings the risk of investors resorting to "on paper only" legal alliances with local agents to evade payment.
The report also listed "loose terminology" in the concerned tax decree, which brings about lack of transparency in legislation and predictability upon implementation. It added that the law specified percentage of tax on national and on other bodies, but failed to classify tax due based on type of activity, which is the case elsewhere.
The bureau noted that the government's working program had clearly indicated the desirability of a fair and sophisticated tax system and the authorities had also stressed legislation in this regard must be debated and finalized and approved without delay to help counter current budget structural imbalance.
On the law to support national labor, the report said it was unfair and a violation of social equality to impose a tax of 2.5 percent on net annual profit on companies listed with Kuwait Stock Exchange but not the others. It would be fair and advisable to impose the same tax on other Kuwaiti companies as well, to take part in supporting the national labor programs. A good alternative is to impose tax on all at a percentage of 2.5 percent which would serve as an acceptable permeable to a comprehensive tax system.
In view of desired expansion in mega projects by Kuwaiti and foreign private sector entities, introduction of this tax on all alike would increase shared responsibility to bolster state budget. The imposition of tax with all its documentation would assist in compilation of thorough and regular records to be used as reference in later follow up on project execution by concerned companies.
The Finance Ministry's Tax Division is the Kuwaiti body responsible for supervising the state's budget and implementation of tax laws and systems. It oversees implementation of laws on taxes imposed on foreign companies and the law taxing listed companies under the "support of national labor" article.
The ministry also implements the law issued in 2006 on Zakat paid by companies to the state budget, which states a one percent tax on net annual profit, with sums spent as specified by Sharia (Islamic Jurisprudence).
As shown by official records, the ministry collected a 15 percent tax imposed on 560 foreign companies operating in Kuwait between 2008-2009 and 2010-2011, at a total value of KD 43 million.
The ministry also collected a tax of 2.5 percent imposed on 222 KSE-listed companies for the said period, at a total sum of KD 28 million.
The one percent tax levied by the Zakat law meanwhile affected 1,121 Kuwaiti shareholding companies at a total of 16 million.
The total sum of tax collected for the said time period comes to KD 87 million, as shown by the ministry records.