'Financial and economic reform cannot be achieved without developing the tax system similarly to what is being applied in both industrial and developing nations,' Finance Minister Bader al-Humaidhi said on the day the proposal was submitted to the cabinet.

The flat tax rate proposal will be debated by the cabinet before being sent to the National Assembly (parliament) for further discussion after the next elections on 29 June. However, given the nature of the bill, it is unlikely that parliament will pass the law, which would be unpopular with the vast majority of the population.

Critics also argue that with more than 95 per cent of the local population employed by the government, taxing Kuwaitis would be akin to giving with one hand while taking with the other. Taxation would also add weight to foreigners' demands for improved state services such as free schooling and healthcare.

The prospect of a reduction in restrictive taxation levels imposed on them has been welcomed by foreign companies. High corporate tax and the offset programme have deterred many companies from setting up in the state. It also makes it hard for them to compete against local companies which do not have to pay any tax (see Special Report, pages 57-58).

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