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Imposition of Value Added Tax (VAT) in KSA and other GCC Countries
Jan 19, 2018

The Kingdom of Saudi Arabia and UAE have taken an important step in introducing Value Added Tax (VAT) in the region. It will be implemented gradually across the GCC in phases over the next year. In June 2016, the GCC countries agreed to impose VAT across the GCC region. In February 2017, Saudi Arabia ratified the GCC VAT framework and the implementation of VAT started on January 1, 2018. VAT has been introduced at a standard rate of 5%. It is an indirect tax imposed on all goods and services that are bought and sold for business purposes, with a few exceptions. VAT has been imposed at each stage of the supply chain from the production and distribution to the final sale of the goods or services. The consumer pays the VAT cost on purchased goods and services.

GOODS AND SERVICES SUBJECT TO VAT

VAT will be applied on goods and services at the standard rate of 5 % such as food and beverages, transportation, real estate, private education & healthcare, oil & gas sector, telecommunication &electronic services and financial services. However, public services which are provided by government agencies will be exempted from VAT which is not considered as an economic activity.

IMPACT OF VAT

The imposition of VAT would affect the purchasing power which as a result will increase the overall cost of living. It will create an extra burden particularly on expatriates who are living with their families. KSA has also increased the prices of petroleum products (Octane 91 fuel from 0.75 riyals per litre to SR1.37 per litre (82% increase) and 95 Octane from 0.90 riyals per litre to SR2.04 per litre (up 126%). The increased prices include VAT which was imposed across the kingdom. Similarly, electricity prices would also increase and consumers will have to bear threefold increase in electricity tariff. The 5% VAT will be on the money transfer fee and not on the transfer amount. Both KSA and UAE have also imposed 100% tax on tobacco products and energy drinks and 50 % tax on soft drinks. The KSA is firmly implementing the policy of Saudization and there is a complete ban on foreign workers to get jobs in sectors like Gold & Jewellery. The Gulfization policy has created a challenging situation especially for low skilled foreign workers. It is the pressing need to upgrade the skill set of our workers in order to get reasonable share from labour market of GCC. Moreover, it is imperative to make cost benefit analysis by the intending emigrants prior to departure due to high cost of living.