Saudi, UAE roll out VAT first in GCC

Dubai : Saudi Arabia and the United Arab Emirates introduced value-added tax (VAT) from yesterday, first time in the Gulf Cooperation Council (GCC) . 

Saudi Arabia also unannounced a hike of up to 127 per cent in petrol prices with immediate effect from midnight. The fuel price hike also included the VAT.

VAT is the latest in a series of measures introduced over the past two years to boost revenues and cut spending as a persistent slump in world oil prices has led to budget deficits. 

The five per cent sales tax applies to most goods and services and analysts project that the two governments could raise as much as $21 billion in 2018, equivalent to 2.0 per cent of GDP. 

But it marks a major change for these countries where the mall is king. Dubai has long held an annual shopping festival to draw bargain hunters from around the world to its glitzy retail palaces. 

Saudi Arabia has deposited billions of dollars in special accounts to help needy citizens face the resulting rise in retail prices. 

The other four GCC states -- Bahrain, Kuwait, Oman and Qatar -- are also committed to introducing VAT but have delayed the move until early 2019. 

None of the GCC states levy any personal income tax and none have any plans to do so in future. 

The International Monetary Fund has repeatedly urged GCC states to diversify their revenues away from oil, which accounts for more than 90 per cent of the Saudi budget and 80 per cent in the UAE. 

Both Riyadh and Abu Dhabi asked all companies with earnings of $100,000 or more a year to register in the VAT system. 

The UAE finance ministry said that VAT returns will be used “for infrastructure development ... (to) upgrade public services ... and boost UAE economy competitiveness.” 

The hike in fuel duty in Saudi Arabia was the second in two years. But it still leaves petrol prices as some of the lowest in the world. 

High-grade petrol rose 127 per cent from 24 cents a litre ($1.09 a gallon) to 54 ($2.46), while low-grade petrol rose 83 per cent from 20 cents a litre (91 cents a gallon) to 36.5 ($1.66). 

Duty on diesel and kerosene remained unchanged. The introduction of VAT coupled with the increase in fuel duty is expected to bring an abrupt end to a year of negative inflation in Saudi Arabia. 

Riyadh-based Jadwa Investment predicted that inflation could reach as much as five per cent after the new measures. 

Saudi Arabia, whose economy contracted by 0.5 per cent last year for the first time since 2009, has introduced a raft of measures to raise revenue and cut spending as it bids to balance its books. 

Last month, it cut the government subsidy on electricity supply for the second time.