Kuwait is renowned for its reliance on generating revenue from the energy sector, but recent developments suggest the landscape is changing.

The country is bidding to shake things up by overhauling their tax system in a move which could be a game-changer for the Kuwaiti economy.

The reforms are part of a broader strategy to align with global standards and to address gaps identified by the Organisation for Economic Cooperation and Development (OECD).

Kuwait has been watching from a distance while their neighbours in the Gulf Cooperation Council (GCC) modernise their economies.

But the new tax plan could be a sign that the government is finally beginning to recognise that they're being left behind.

Kuwait’s Economic Reforms

Kuwait’s decision to revamp their tax system is a key sign that times are changing as they bid to diversify their economy away from their historical reliance on oil and gas revenues.

All companies operating in Kuwait are now mandated to comply with the business profit tax. This previously only applied to non-Gulf foreign companies and corporate shareholders.

However, Kuwait is keen to spread the cost of running the country more fairly, so the rules now incorporate all businesses.

Creating an equitable taxation system where businesses contribute more to the national revenue is crucial to Kuwait’s diversification plan. They’ve been dependent on hydrocarbons for too long.

Kuwait’s efforts in modernising their economy haven’t gone under the radar, but they’re still a long way behind their neighbours, especially the United Arab Emirates (UAE).

They’re one of only two GCC states that has yet to introduce a value-added tax (VAT), which is a common way for governments to make money.

Experts believe Kuwait are nowhere near ready to implement the VAT, which affirms the country is moving at a snail’s pace to establish economic reforms and catch up with their neighbours.

Meanwhile, in addition to the tax reforms, Kuwait could consider further diversifying their revenue streams by exploring new industries, such as gambling.

Creating a regulatory framework for online casinos in Kuwait represents a potential lucrative avenue for generating additional revenue.

While gambling is largely frowned upon in the Middle East, nations such as the UAE are attracting international tourists and investors by showing tolerance towards betting.

It may be an unusual idea for Kuwait to generate revenue, but could be a decent way to boost the economy. They’ve already taken the first step towards becoming compliant with international standards by joining the OECD’s Base Erosion and Profit Shifting (BEPS) initiative.

The UAE’s Bold Moves Could be a Model for Kuwait

The UAE are head and shoulders ahead of their neighbours in terms of economic transformation across the Gulf region.

One of their most eye-catching moves was complimenting the introduction of a company tax by negotiating with neighbouring countries to avoid double taxation.

The treaty with the neighbours is particularly key as it makes cross-border business easier and cheaper while encouraging more investment that will further boost the economy.

The UAE has also invested heavily in infrastructure to solidify their position as a global tourism hub.

They're using technology to improve how businesses work and have hosted big events such as Expo 2020 in Dubai to show the world what they can do.

One of the most striking examples of the UAE's bold economic moves is its approach to the gambling industry. While such activities have traditionally been prohibited in the UAE, there have been discussions about legalising certain forms of gambling to attract tourists and boost revenue.

The UAE recently awarded its first lottery licence, proving they’re gradually becoming amenable to the idea of gambling. It’s only a matter of time before other forms of gambling are legalised, although they will operate in a heavily regulated market.

Kuwait Needs to Follow in the UAE’s Footsteps

Kuwait needs to drop their ‘safety first’ approach and explore bold moves in diversifying their economy away from the oil and gas sector.

Their neighbours have shown that it can be done without going against Islamic laws and they could use the UAE as a blueprint to navigate the world of heavily regulated gambling.

They’re already making progress, but must ramp up their efforts to bolster their economy, especially in the gambling sector, which could be a huge game-changer for their finance industry.

The success of gambling-related activities in other parts of the world is enough evidence of the untapped potential of the industry across the Gulf region.

Kuwait could explore a model similar to that of the UAE, where gambling is tightly regulated and integrated into larger tourism and entertainment offerings.