File picture: A Saudi man walks past a pump at a petrol station on December 28, 2015 in the Red Sea city of Jeddah. Image Credit: AFP

Manama: The standard Value Added Tax (VAT) of five per cent will be applied to purchasing petrol, Saudi Arabia's General Authority of Zakat and Tax (GAZT) has said.

The confirmation was stated in a reply to an online question whether there would be a VAT rate for petrol.

"The VAT rate of five per cent for petrol will be applied starting January 1, 2018," GAZT said.

Last week, the authority said the local transport of passengers and goods within Saudi Arabia, and associated services would be subject to the standard 5 per cent VAT rate, with businesses collecting the tax from travelers upon purchasing the travel ticket.

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However, it said that the international transport of passengers and goods will be zero-rated according to the Unified VAT Agreement for the Gulf Cooperation Council (GCC) and the VAT Implementing Regulations.

The zero-rated services include excess baggage and seat reservation fees, maintenance, repair and modification of qualified international transport, storage charges, port charges, parking fees, customs duties, customs clearance fees, transport-related fees, air navigation services fees and aircraft crews.

VAT will be implemented in Saudi Arabia on January 1, as part of the Unified GCC VAT Agreement.

The Implementing Regulations outline the goods and services subject to VAT at the standard 5% rate, zero-rate, and those exempted or out of VAT scope.

According to Saudi daily Okaz, the deposition and withdrawal of cash, car deals between individuals and the sale of cars to garages will not be subject to VAT.

The sale of residential properties to first-degree relatives and the rental of residential properties to relatives will not be included in the VAT charges.

"Free" cash transfers between banks, stocks, credit cards, mortgages, financial leasing, end-of-ownership lease, life insurance, personal finance, interests and investment funds will also be zero rated.

VAT is imposed at each stage of the supply chain from the production and distribution to the final sale of the good or service.