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Thursday , December 8 2022

Nod to water, power hike on expats – Kuwaiti residences exempted – LOOMING VAT TAX TO ADD 5% TO GOODS, SERVICES

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Parliamentarians in discussion prior to Wednesday’s National Assembly session.
Parliamentarians in discussion prior to Wednesday’s National Assembly session.

KUWAIT CITY, April 13, (AFP): Kuwait’s Parliament on Wednesday passed a bill allowing the government to raise power and water charges on foreign residents and on businesses but exempted the Gulf state’s citizens. Thirty-one MPs voted in favour while 17 members opposed it. The second and final round of voting will take place after two weeks.

MPs initially rejected the bill but later approved it after Kuwaiti citizens were exempted. If given the final clearance, it will be the first time in 50 years that Kuwait raise power charges.

Like other crude exporters, Kuwait’s oil-dependent revenues dwindled since oil prices crashed by over 70 percent from its mid-2014 peak.

The bill stipulates to raise power charges in apartment buildings, overwhelmingly used by foreigners, from the current flat rate of two fils (0.7 cents) per kilowatt gradually to up to 15 fils (five cents) per kilowatt. For commercial uses, it will be raised from two fils per kilowatt to 25 fils per kilowatt.

 Water prices will also be more than doubled. Electricity and Water Minister Ahmad Al-Jassar told a heated debate in Parliament that the government was paying around $8.8 billion annually to subsidise power and water production. If no action was taken, consumption would triple by 2035 and subsidies would rise to $25 billion, the minister said.

The aim of the bill was to cut consumption by over 30 percent, he said. But most lawmakers strongly rejected the government plan to raise power charges on citizens and blamed it for what they called economic mismanagement. “This would be the biggest crime against citizens and expatriates,” Shiite MP Saleh Ashour said.

Independent MP Jamal Al- Omar blamed government failure for the economic crisis. “The cause of the crisis is not the drop in oil prices alone, but also the government’s failure … Our government is incapable of managing the country,” Omar said.

The government also plans to hike heavily-subsidised petrol prices, one of the cheapest in the world. Kuwait has posted a budget deficit of $20 billion in the past fiscal year, according to provisional figures, following 16 years of windfall due to high oil prices. The country is home to 1.3 million native citizens and around 3.0 million foreigners.

Kuwait has remained the only country in the Gulf not to raise power and petrol tariffs since the sharp drop in oil prices. On the other hand, the Financial and Economic Committee’s report about the financial situation of the country and the proposal to lift subsidies was withdrawn and referred back to the committee in a bid to take into consideration the recommendations of MPs. During the discussion, majority of the MPs outrightly rejected the idea of lifting subsidies, asserting that financial reforms should not be at the expense of the public.

MP Ahmed Al-Mutai claimed the government is mute and it cannot come up with any solution other than touching the citizens’ pockets despite the availability of other means or channels like the recovery of stolen public funds. He said the government is trying to conceal its negligence by insisting that this directive is due to the financial incapability of the country, while the head of the International Monetary Fund confirmed that the State of Kuwait is not facing financial difficulty.

Furthermore, MP Faisal Al- Kandari asserted the current Assembly was able to break monopoly of big traders and it was successful in finding solutions to the housing issue without any impact on the finances of the people. He added that when the government said the Kuwaiti public is living in welfare, he urged them to go to Zakat House to see the number of Kuwaitis waiting in line to receive Zakat allocation, or the Central Prison to know the number of citizens detained due to inability to pay loans.

He lamented, “The government is ripping the pockets of the Kuwaiti public.” After a number of MPs voiced their concerns which geared towards rejecting the directive in spite of the finance minister’s statement that 40 percent of the general electricity consumption come from private residences, MP Abdullah Al- Mayouf said the Assembly seems to be rejecting the idea completely, especially since it will be at the expense of the public. He stressed this is unacceptable, “for we cannot punish the Kuwaiti public for governmental blunders.”

Baffled by the proposal of the government, MP Faisal Al-Duwaisan demanded for allocation of the remainder of the session to the government for them to explain the nature of what they call as financial reforms, because he believes no real effort is being exerted while throwing projects here and there are “absurd attempts.” The Parliament also talked about the letter of Deputy Prime Minister, Minister of Finance and acting Minister of Oil Anas Al-Saleh about Moody’s credit rating for Kuwait.

Al-Saleh confirmed the government intends to support privatization and expansion of its course in the medium term by privatizing public enterprises, in addition to public-private partnership projects and soft financing for small and medium enterprise.

He noted no privatization program will succeed if there are no measures to encourage healthy competition, “so the implementation of the privatization program will be linked to activating the role of the competition authority and combating monopoly. He added that providing an attractive environment for the private sector will encourage foreign investors and increase the involvement of citizens in the ownership of infrastructure as well as facilitation of trade and liberalization of State land to support the role of the private sector in economic activity. He explained that in the context of increasing the contribution of the private sector, the government will implement 12 projects through partnership between the public and private sectors from 2016 to 2019 with citizens contributing 50 percent.

On funding the projects, the minister revealed the portfolio of Kuwait Industrial Bank and the National Fund for Small and Medium Enterprises will finance 2,727 projects in the next four years with a capital of KD470 million whereas these projects are expected to generate more than 3,500 jobs for citizens.

Talking about foreign investments, Al- Saleh said the volume of direct foreign investments in 2015 reached KD403 million. These are full and free foreign investments, not through partnerships like IBM – a global company in the information technology sector.

On the financial and economic reforms, Al-Saleh presented a document supporting procedures in this regard, stressing this document was inspired by the development plan that the Parliament approved for the country to cope with the current situation. He said the document consists of six key points and operational procedures which will be taken according to the timetable approved by the Council of Ministers. He enumerated the key points as follows: final reform, redefining the State’s role in the national economy, increase the contribution of the private sector in economic activity, citizens’ participation in owning projects, reform the labor market and civil service system, legislative and institutional reform and support actions.

Part of the reforms, he said, would be levying a 10 percent tax on companies’ profits and a five percent VAT tax on the production of goods and services. While he emphasized that the government would have to rein in its expenditures, he said it was necessary as well to take a different look at the prices of water and power currently in place, with the view of revising them upwards. He however said that various government subsidies to citizens would continue but would be modified so only those who deserve them get them.

By Ahmed Al-Naqeeb and Abubaker A. Ibrahim Arab Times and Agencies

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