Kuwait’s plan to impose taxes, cut fuel subsidies face hurdle

Duabi: Kuwait’s plan to impose corporate taxes and cut fuel subsidies to reduce the Organisation of Petroleum Exporting Countries (Opec) member’s reliance on oil faces a familiar obstacle: a parliament that has resisted previous attempts to curtail one of the world’s most generous welfare systems.
Finance Minister Anas Al Saleh on Monday submitted a six-point plan to the cabinet that aims in part to bolster revenue and cut public spending. Measures include selling stakes in state-owned entities, official media reported. The plan needs parliamentary approval.
“In the current parliament there are no political blocks with defined economic plans or philosophies,” Abdullah Al Naibari, a former lawmaker, said a phone interview from Kuwait on Tuesday. “There are individuals with one aim, which is winning votes nothing else.”
The plunge in crude prices have increased pressure on oil exporters from Saudi Arabia to Venezuela to shore up their public finances and find alternative sources of revenue. While Kuwait has more financial firepower to weather the slump more than some of its neighbors, officials have repeatedly warned that maintaining government spending policies is unsustainable.
Less Pressure
While Kuwait faces less pressure to reform, the “announced reforms are welcomed, as they would help diversify the government’s income base and reduce its volatility,” Razan Nasser, senior Middle East and North Africa economist at HSBC Holdings Plc in Dubai, said by e-mail.
“The real challenge is passing the reforms through parliament and winning public support,” she said. “The reversal of fuel subsidy reforms last year highlights the difficulty of implementing such unpopular reform measures.”
The Kuwaiti parliament has resisted previous government plans to boost investments and curtail current spending. In 2013, lawmakers sought to write off interest payments on bank loans taken by nationals over five years to bail out indebted citizens.
The benchmark Kuwait Stock Exchange Index fell 0.3 percent at 12:02 p.m. in Kuwait City. The measure has dropped 19 percent over the past 12 months, compared with a 15 percent decline in the MSCI Emerging Markets Index.
“Disagreements between the government and the parliament has complicated decision making in the past,” Carla Slim, an economist for Standard Chartered Plc in Dubai said in an e-mail. “It is yet to be determined if widening the tax base and boosting government revenue is a priority to both political bodies.”