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02/01/2018 - 19:01hs

Saudi, UAE introduce value-added tax

On January 1st, both countries started applying an unprecedented 5% Value-Added Tax (VAT). The goal is to offset losses stemming from weaker oil revenue.

São Paulo – On the first day of the year, Saudi Arabia and the United Arab Emirates started levying Value-Added Tax (VAT) on goods and services. The 5% charge applies to items including fuel, food products, clothing, electronics, hotel rates, telephone, water and electricity bills. Healthcare, education and public transportation are exempted.

The charges are unprecedented in both countries, and intended to offset weaker revenue due to the oil price slump. Both Saudi Arabia’s and the UAE’s budgets rely on oil sales for the most part. Over the past two years, both countries ran fiscal deficits.

The Saudi government is expecting to gross SAR 35 billion (USD 9.3 billion) with the VAT this year, while the UAE hopes to collect AED 12 billion (USD 3.3 billion). The tax was agreed upon by all Gulf Cooperation Council (GCC) member countries, but the remaining members have postponed its introduction for 2019. The GCC comprises Saudi Arabia, the UAE, Bahrain, Qatar, Oman and Kuwait.

The VAT charge had been advised upon by multilateral institutions such as the International Monetary Fund (IMF) as a countermeasure to cheap oil, but the fact that these countries are mostly tax-free environments for natural persons attracts large numbers of expatriate workers. For the time being, income taxes are not expected to be put in place, BBC said.

Emirates News Agency (WAM) reported that Saudi Arabia had already begun levying 100% tax on tobacco and energy drinks, as well as 50% charges on soft drinks. In the UAE, road toll charges were hiked and a tourism tax was introduced, BBC also said.

The IMF had also advised GCC countries to cut fuel subsidies. Britain’s Financial Times said gas prices in Saudi Arabia increased by 83% to 127%, with different charges on different fuel qualities.

*With information from Agência Brasil. Translated by Gabriel Pomerancblum

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