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Saudi Arabia gives final approval to VAT

A five-per cent levy will apply to certain goods following a GCC agreement last June

Image Credit: Reuters
Kingdom Tower towers over Riyadh’s night skyline.
01 Gulf News

Riyadh: Saudi Arabia is ready to implement a region-wide value added tax, the cabinet said on Monday, giving final approval to the measure which will take effect next year.

Cabinet “decided to approve the Unified Agreement for Value Added Tax” to be implemented throughout the six-member Gulf Cooperation Council (GCC), the official Saudi Press Agency said.

“A Royal Decree has been prepared,” it said.

A five-per cent levy will apply to certain goods following a GCC agreement last June.

The move is in line with an International Monetary Fund recommendation for Gulf states to impose revenue-raising measures including excise and value added taxes to help their adjustment to lower crude oil prices which have slowed regional growth.

The GCC countries have already agreed to implement selective taxes on tobacco, and soft and energy drinks this year.

Regional residents had long enjoyed a tax-free and heavily subsidised existence.

Saudi Arabia, the world’s biggest oil exporter, froze major building projects, cut cabinet ministers’ salaries and imposed a wage freeze on civil servants to cope with last year’s record deficit of $97 billion.

It also made unprecedented cuts to fuel and utilities subsidies.

The kingdom is boosting non-oil revenue as part of economic diversification efforts and aims to balance its budget by 2020.

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The introduction of VAT will be a great challenge for traders who chargeexorbitant prices for their commodities. The tax authority can monitorthe prices charged for specific products at different shops. The civicauthority can intervene in case of corrective actions as far as pricingis concerned. By excluding some essential commodities,on whichconsumers are largely depend, outside the purview of the tax net, aimedat reducing the tax burden of residence and citizens alike, theauthority is indirectly helping these traders to continue their practiceof illegal profiteering. The application of moderate VAT (1-2%)on theseessential commodities will ensure a uniform pricing, help bring downthe prices besides having a close monitoring of prices. Otherwise largenumber of essential commodities will be traded across the counters atarbitrary prices. Since POS and bar coding are widely used in UAE than any other GCC nations, article wise price analysis will be easily possible.

Girish R Edathitta

31 January 2017 12:05jump to comments
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