Kuwait postpones VAT on recovering oil revenues

Kuwait's decision to delay the introduction of VAT on food and other items comes as the economy benefits from higher oil revenues. (AFP)
Updated 15 May 2018

Kuwait postpones VAT on recovering oil revenues

  • All six GCC states agreed last year to introduce VAT by 2018
  • Only UAE and Saudi Arabia have introduce the 5 percent levy

LONDON: Kuwait has postponed plans to introduce value-added tax (VAT) to 2021, as rising oil revenues ease pressure on the country’s economy.

However the country’s parliamentary budget committee said it would push ahead with plans to tax certain products such as tobacco, energy drinks and soft drinks, according to a government statement on Tuesday.

“The committee noted that the value-added tax will be delayed in Kuwait until 2021, and that the Ministry of Finance considered the need to speed up excise tax on selected commodities such as tobacco, soft drinks and soft drinks,” according to the budget committee statement, published on 15 May, said.

The new excise tax is expected to boost treasury revenues by 200 million dinars ($662.6 million), as well as aiming to improve the health of Kuwaitis by reducing the consumption of cigarettes and sugary drinks, the committee’s statement said, without providing a timeline for the implementation of the new levy.

The UAE and Saudi Arabia have both already introduced the five percent VAT at the start of this year in an effort to boost government revenues that have been under pressure from low oil prices.

While all six GCC states originally agreed to bring in the tax in 2018, commitment to the tax has flagged.

Oman, Qatar and Bahrain are expected to introduce VAT by next year, although no specific date has been given yet.

The delay in Kuwait’s VAT plans was widely expected, according to analysts, given domestic political resistance to the tax, and the relative strength of the country’s finances compared with neighboring states.

The price of oil is now on the rise thanks to increasing global demand and the Opec-led deal that came into force last year. Oil prices briefly rose above $79 a barrel on Tuesday, making the prospect of introducing a new levy in a country unused to taxation is even less appealing.

“The combination of Kuwait having among the lowest fiscal and external breakevens in the region, and the vast sovereign assets of the Kuwait Investment Authority have always reduced the urgency for the government to introduce new revenue-raising measures compared to other sovereigns in the region such as Saudi Arabia and Oman,” said Thaddeus Best, analyst at Moody’s Investors Service.

“The recent rise in oil prices has also likely further sapped reform momentum,” he told Arab News.

Kuwait’s state budget for the fiscal year ending March 31, 2019 forecasts 15 billion dinars in revenue, based on an average price of oil at just $50 per barrel. Oil has traded above the $50 a barrel mark since July 2017.

The delay in introducing VAT will not have an immediate impact on government revenues, or any material impact on their sovereign rating for the country, according to Zahabia Gupta, associate, sovereign and international public finance ratings, at rating agency S&P Global.

“As the government relies on hydrocarbon receipts for around 90 percent of its revenue, we expect higher oil prices will likely offset the potential loss in revenue from delaying the implementation of VAT,” she said.

Concerns about the oil price persist, with Kuwait’s fiscal and external positions remaining vulnerable to swings in oil prices, she said.

But such risks are “balanced by Kuwait’s sizable fiscal and external buffers, which remain key rating strengths,” she said.

The IMF has urged Kuwait to keep progressing with plans to introduce both excise and VAT charges, as well as reduce government spending, in its Article 4 briefing published in January,.

However, Best said that even if implemented, VAT alone may not be enough to balance any long-term decline in oil prices.

“The relatively modest fiscal gains from the proposed revenue measures also need to be taken into account,” he said.

“For example, we estimate the additional revenue from VAT would be equivalent to around 1.6 percent of GDP assuming full compliance, which although higher than some of our estimates for other GCC sovereigns, is still ultimately less than the additional government revenues arising from a $5 increase in the price of a barrel of oil.”


Electric luxury vehicles, SUVs ‘more likely to cause accidents’

Updated 31 min 41 sec ago

Electric luxury vehicles, SUVs ‘more likely to cause accidents’

  • As EV sales rise, French insurer AXA warns that drivers are struggling to adapt to cars’ rapid acceleration

LONDON: Electric luxury cars and sport utility vehicles (SUVs) may be 40 percent more likely to cause accidents than their standard engine counterparts, possibly because drivers are still getting used to their quick acceleration, French insurer AXA said.

The numbers, based on initial trends from claims data and not statistically significant, also suggest small and micro electric cars are slightly less likely to cause accidents than their combustion engine counterparts, AXA said at a crash test demonstration on Thursday.

AXA regularly carries out crash tests for vehicles. This year’s tests, which took place at a disused airport, focused on electric cars.

Overall accident rates for electric vehicles are about the same as for regular cars, according to liability insurance claims data for “7,000 year risks” — on 1,000 autos on the road for seven years — said Bettina Zahnd, head of accident research and prevention at AXA Switzerland.

“We saw that in the micro and small-car classes slightly fewer accidents are caused by electric autos. If you look at the luxury and SUV classes, however, we see 40 percent more accidents with electric vehicles,” Zahnd said.

“We, of course, have thought about what causes this and acceleration is certainly a topic.”

Electric cars accelerate not only quickly, but also equally strongly no matter how high the revolutions per minute, which means drivers can find themselves going faster than they intended.

FASTFACT

Accident rates among luxury and SUV electric vehicles are 40 percent higher than for their combustion engine counterparts.

Half of electric car drivers in a survey this year by AXA had to adjust their driving to reflect the new acceleration and braking characteristics.

“Maximum acceleration is available immediately, while it takes a moment for internal combustion engines with even strong horsepower to reach maximum acceleration. That places new demands on drivers,” Zahnd said.

Sales of electric cars are on the rise as charging infrastructure improves and prices come down.

Electric vehicles accounted for less than 1 percent of cars on the road in Switzerland and Germany last year, but made up 1.8 percent of Swiss new car sales, or 6.6 percent including hybrids, AXA said.

Accidents with electric cars are just about as dangerous for people inside as with standard vehicles, AXA said. The cars are subject to the same tests and have the same passive safety features such as airbags and seatbelts.

But another AXA survey showed most people do not know how to react if they come across an electric vehicle crash scene.

While most factors are the same — securing the scene, alerting rescue teams and providing first aid — it said helpers should also try to ensure the electric motor is turned off. This is particularly important because unlike an internal combustion engine the motor makes no noise. In serious crashes, electric autos’ high-voltage power plants automatically shut down, AXA noted, but damaged batteries can catch fire up to 48 hours after a crash, making it more difficult to deal with the aftermath of
an accident.

For one head-on crash test on Thursday, AXA teams removed an electric car’s batteries to reduce the risk of them catching fire, which could create intense heat and toxic fumes.

Zahnd said that studies in Europe had not replicated US findings that silent electric vehicles are as much as two-thirds more likely to cause accidents with pedestrians or cyclists.

She said the jury was still out on how crash data would affect the cost of insuring electric versus standard vehicles, noting this always reflected factors around both driver and car.

“If I look around Switzerland, there are lots of insurers that even give discounts for electric autos because one would like to promote electric cars,” she said.