When will VAT be implemented in Kuwait?
Value-added tax in Kuwait is expected to implement in 2021 in continuation with the GCC Framework Treaty signed in 2017 by six countries. According to Kuwait Tax authorities, VAT will be introduced at 5% on all goods and supplies with the exception given to certain sectors including health care, education, and financial services. One of the major reasons to implement VAT in Kuwait is to re-balance the economic dependence on oil revenue since oil prices have fallen globally from over $125 per barrel to only $75 p/b in the past five years.
Impact of VAT on Kuwait
Value-added tax will impact almost all the industries in Kuwait especially:
- Consumer Goods
- Industrial products
- Technology, media, and telecommunications
- Real estate
Value-added tax is a new concept in Kuwait and it will initially have a negative impact on the economy due to an increase in inflation rate and decrease in consumer spending. Economic sectors including real estate, transportation, and automobile will see a decrease in demand. However retail, financial sector, oil & gas, and telecom sector might not see many changes due to VAT introduction.
On the other hand, in the long run, VAT will show its positive consequences on the economy by offering market growth and capacity enhancement opportunities.
Preparation for VAT in Kuwait
There are a number of actions business entities must take before VAT implementation to ensure corporate governance systems, processes, and contractual arrangements are prepared for the new VAT Law in Kuwait. It includes:
- Assess VAT readiness with GCC VAT Review Smart to consider everything from the financial impact of VAT, from staffing and accounting processes.
- Develop strategic roadmaps, workflow structure, and resource plan to identify the work necessary to submit VAT returns.
- Mapping business and accounting transaction footprint to determine all future VAT liabilities and maintain compliance with regulatory obligations.
- Evaluating and updating contractual arrangements with vendors and customers to make sure that each party is aware of its responsibilities.
- Incorporate appropriate clauses in contracts and implement changes to contractual terms, where necessary.
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