Highlights of the Value added Tax and the State Economy

In light of the state’s need for financial resources, in order to provide public services for projects and consumers, it is entitled to collect taxes in the form of resources for the public treasury.

The tax base is different from one country to another according to the tax policy that reflects the legislative and executive policy in the country.

-A state-supported economy: This policy is adopted by countries wishing to reduce the burden of living on citizens and support the building process based on the development of the public sector. Such countries impose income tax on high-income earners such as merchants and foreign commercial companies in particular, and may exempt citizens from this tax.

According to this scenario, the state establishes and runs large and strategic government projects with the aim of achieving profits that finance the general budget and allow the continuation of the government support policy.

-Free economy: It is a strategy in which the state does not interfere in the market, as its role is limited to imposing law and order only, and in return it is based on the collection of wide segments of taxes on the basis of income and value added.

Government projects are almost non-existent in this type of economy, and accordingly, there is no financial support from the public budget, and therefore the market is free and the prices are not supported, but in return the level of development is high and the economy is active; So that job opportunities increase, wages rise, and the country is attracts foreign direct investment.

It can be said that the most sensitive period of economic transformation of the tax policy is the state’s shifting from a subsidized economy to a free economy. Where the state has to impose taxes on income and value added at a time when people are not used to nor ready for this kind of direct financial burden which may impact their living.

This is the case in Kuwait, which is moving from a rentier state supporting economy where there is no tax burden on the income of the Kuwaiti citizen or the Kuwaiti companies, to a free economy that attracts foreign investment in which tax burdens citizens.

International Department Team
Dr. Bader S. Al-Otaibi
Law Firm & Intl. Arbitration

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