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Saudi King Salman bin Abdulaziz Al Saud (C, Front) (Xinhua/IANS)

In a move widely believed to aid the beefing up of revenues of the pandemic hit oil producing state, Saudi Arabia’s decision to raise the value-added tax (VAT) rate to 15 per cent came into effect on Wednesday on all goods and services subject to it in markets across the Kingdom. A royal decree in this regard was issued on May 11.

The Saudi General Authority of Zakat and Income called on all taxpayers who are registered in the VAT to verify the readiness of their facilities, and learn about all transitional provisions related to raising the tax rate, by reviewing the guidelines, Gulf News quoted the state-media report as saying.

The authority also urged citizens and residents to ascertain the items of the tax invoice, including store name, date of purchase, tax number, and VAT, calling for cooperation with and reporting any violation business if these elements are not available, through its website and app.

The tax will be applied to all services and goods that are economic in nature, except for activities that have been exempted — mainly international transportation services, spare parts and consumables, maintenance and repair services for transportation, health care services, medicines and medical equipment issued by the Ministry of Health and the Food and Drug General Authority, reports Arab News.

The value-added tax applies to electricity and water bills issued after July 1, as well as imported goods based on the date of importation, so if the importation took place before the end of June 30, 2020, the basic rate of 5 percent applies, but if importation takes place after this date, the modified base rate of 15 percent applies.

The increase in VAT received mixed response from various quarters. A number of economists have raised concerns about the possible negative impact on businesses, consumers’ purchasing power, consumption and inflation.

“I believe the government has chosen to apply the least painful austerity measure to mitigate these concerns, especially when considering that a wide range of goods and services are VAT-exempt, such as private education, health-related products and services, and up SR850,000 ($226,718) of the price of the first house bought by a national.” economist and financial analyst Talat Zaki Hafiz observed in a column.

He also cites arguments in support of the move, “It is worth noting that despite the Saudi government tripling VAT, it is still lower than in most developed economies such as Denmark, Sweden and Norway, whose VAT reaches 25 percent.

The government is pursuing the austerity measure with the least direct negative impact compared to other solutions such as dismissing government employees, reducing salaries, and freezing bonuses and promotions,” he added.

The adjusted tax applies to all supplies of taxable goods or services imported into the Kingdom.

In early May, Saudi Arabia announced it would triple its VAT from 5 per cent to 15 per cent as part of measures to shore up its economy hit by the impact of the COVID-19 pandemic and low oil prices.

The government also said it will suspend the cost of living allowance as part of the austerity steps.

Saudi Arabia is one of the most affected Middle Eastern countries with 190,823 COVID-19 and 1,649 deaths.

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