Authorities investing heavily in tech
Following is the interview with Fahim Bashir, Tax Partner in KPMG Kuwait, on Kuwait and Regional tax updates.
How does tax fit into the digital disruption that we are expiring today?
There is a lot to talk about on the digitisation of tax. Two key aspects, the first of which is digitisation of the tax function where companies globally are embracing tax technology, in part to comply with new electronic reporting requirements but more importantly to leverage automation to make their tax functions operate more accurately and efficiently. There is increasing pressure on tax functions to question their tax operating models and find new ways to structure their people, processes and technology to meet the demands of the future.
Secondly, there is the digitisation of tax authorities as they invest heavily in technology in order to improve their ability to gather more information and insights on tax positions of taxpayers. The other challenge for tax is the digital economy, where companies now reach markets in jurisdictions in which they may have relatively little physical presence through online platforms. Traditional tax rules would typically look at taxing rights based on physical presence, but this is now changing. Digitisation is allowing governments to direct policy toward economic activity at the level of distinct transactions and to consider new forms of taxation of activity in the digital domain.
What are key tax issues impacting businesses in Kuwait?
For local business, primarily it is compliance with tax retentions and possibility of tax liabilities arising due to contracting with foreign companies. In fact, the tax retention requirements have been in effect since 1985, so these are not new requirements. These require contract owners to deduct 5% on payments to certain beneficiaries. However, the Kuwait tax authority has recently placed greater focus on compliance. We have seen more and more occurrences of the Kuwait tax authority approaching local companies to confirm they are complaint with these regulations and, in certain cases, to recover tax debt on behalf of taxable entities that have not been compliant.
This not only has a cash impact, but there is increased reputation risk for companies that are considered non-complaint. Certainly, this is an area which companies in Kuwait should place greater focus.
In addition to the above, local companies should disclose contracts they enter into through periodical submissions, known as a tax retention return. This provides the Kuwait tax authority with information on companies conducting business in Kuwait. Both the above factors help the Kuwait tax authority enforce the Kuwait corporate income tax law, as it is through compliance with Kuwait tax obligations that companies would be able to obtain a release of tax retentions. We are holding a tax seminar on 20th March which will discuss the above in more details. Other topics that are on the agenda are Value Added Tax (VAT) and Excise. We will also discuss Common Reporting Standards (CRS) and Foreign Account Tax Compliance Act (FATCA) reporting which are significant matters for the financial services sector.
Do you feel tax does not have the prominence it should have in today’s business environment?
At a macro level, globally tax is at the forefront of negotiation and debate, and it is driving decisions on policy and trade. Tax has become a greater talking point amongst boardrooms, the Csuite, across businesses and their supply chains. Reputational risk around tax has reached new heights as governments and the general public have taken more interest in large corporations and how much tax they pay. Transparency has become a critical factor when deciding on tax strategy together with corporate responsibility. It appears inevitable that these changes will, in time, come to Kuwait. The global effort to curb tax base erosion and profit shifting has concentrated attention on both tax competition among countries and tax responsibility among corporations.