Kuwait mulls tax on goods and infrastructure as low oil prices bite

Kuwait is looking to implement various taxation measures including a levy on luxury goods, the installation of paid parking metres and road tolls in order to offset a fall in oil revenues

According to a report by local daily Kuwait Times, the government is also reviewing the price of goods and public services. Currently most public services are provided for free while essential goods are subsidised.

Authorities are also looking to impose taxes on local companies, extending the fees levied on expats to locals as well, the publication added. These charges will reduce the strain on public coffers when subsidising water, power and the use of infrastructure.

Kuwait, like many other Gulf states, has been forced to scale back its welfare spending due to low oil prices. The Gulf Arab country is heavily reliant on hydrocarbons, drawing 90 per cent of its public finances from oil revenues. Total spending this fiscal year has been halved after a budget deficit of $27bn was predicted.

Low oil prices have been causing budgetary pressures, prompting most Gulf Cooperation Council governments to adopt indirect taxation measures and lift their lavish subsidies.

Earlier this year, Bahrain removed subsidies on meat while the United Arab Emirates deregulated its fuel prices, potentially saving millions of dollars.

GCC countries have also been eyeing the implementation of value added tax as an alternative source of public revenue. Kuwait is reportedly mulling VAT in addition to other indirect taxes.

These could include a toll on some highways to help the state maintain and upgrade its infrastructure. Kuwait Times said that the government could also collect pending fines and arrears from citizens, signalling a squeeze in public spending.

A continuous spate of low crude prices and a slowdown of growth in many major Asian economies have impacted the Gulf countries, resulting in wide-sell offs within their markets and slowed down investments.

Although Gulf Arab countries have dismissed any immediate effects of oil price volatility on their economies, analysts say that the impact might only be visible towards the end of this year.

In a recent report, the World Bank estimated that the decline in crude prices could cost the GCC nearly $215bn or 14 per cent of combined gross domestic product this year. As a result, the region may record a fiscal deficit for the first time in four years.