First Published: 2018-01-01

Saudi, UAE introduce VAT
Saudi Arabia compounds New Year blow for motorists with unannounced hike of up to 127 percent in petrol prices.
Middle East Online

A five percent sales tax applies to most goods and services and

DUBAI - Saudi Arabia and the United Arab Emirates introduced value-added tax from Monday, a first for the Gulf which has long prided itself on its tax-free, cradle-to-grave welfare system.

Saudi Arabia compounded the New Year blow for motorists with an unannounced hike of up to 127 percent in petrol prices with immediate effect from midnight.

They are the latest in a series of measures introduced by Gulf oil producers over the past two years to boost revenues and cut spending as a persistent slump in world prices has led to ballooning budget deficits.

The five percent 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 percent of GDP.

But it marks a major change for two super-rich 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 Gulf states -- Bahrain, Kuwait, Oman and Qatar -- are also committed to introducing VAT but have delayed the move until early 2019.

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

The International Monetary Fund has repeatedly urged Gulf states to diversify their revenues away from oil, which accounts for more than 90 percent of the Saudi budget and 80 percent 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 percent from 24 cents a litre ($1.09 a gallon) to 54 ($2.46), while low-grade petrol rose 83 percent from 20 cents a litre (91 cents a gallon) to 36.5 ($1.66).

Duty on diesel and kerosene remained unchanged.

- 'They'll tax the air' -

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 percent after the new measures.

Saudis reacted sarcastically on social media to the new sales tax.

"They are even taking taxes on car parking. I am afraid they will next tax the air," wrote Ahmed bin Fatima.

Saudi Arabia, whose economy contracted by 0.5 percent 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 in two years, leading to a sharp rise in bills.

Riyadh posted budget deficits totalling $260 billion over the past four fiscal years and does not expect to balance its books before 2023.

To finance its mounting public debt, the kingdom has withdrawn around $250 billion from its reserves over the past four years, reducing them to $490 billion.

It has also borrowed around $100 billion from the international and domestic markets.

 

Sudan clamps down on journalists covering bread protests

Tribal feuds spread fear in Iraq's Basra

UN warns of "lost generation" in South Sudan's grinding conflict

Trump dashes Netanyahu’s hope to move US embassy to Jerusalem

US to overtake Saudi as world’s second crude oil producer

Aid for millions of Palestinians hostage to politics

Lebanon thwarts holiday attacks using IS informant

Mortar fire wounds 14 in Syria mental hospital

Turkish military fires on Kurdish forces in Syria's Afrin

More than 32,000 Yemenis displaced in intensified fighting

Saudi's refined oil exports offset crude curbs

Turkey's EU minister rejects any option other than full membership

Turkey says not reassured by US comments on border force

UN chief wants to revive Syria gas attack probe

US has no intention to build border force in Syria

Lebanese intelligence service may be spying using smartphones worldwide

Egypt's Sisi sacks intelligence chief

Cyprus denies bail for Israeli organ trafficker

Rising Yemen currency sparks hopes of relief

Turkish ministries to investigate underage pregnancy cover-up

Iraq PM launches online appeal for election allies

Iran central bank sees claim for billions from German stock market blocked

Iraq signs deal with BP to develop Kirkuk oil fields

Israeli occupation forces raid Jenin, kill Palestinian

HRW chief says 'Nobody should be forcibly returned to Libya'

IS poses threat to Iraq one month after 'liberation'

Seven years since ousting dictator, Tunisians still protest

Iran says Trump jeopardising Airbus deals

China says Iranian oil tanker wreck located

Sudan arrests communist leader after protests

Syrian opposition joins condemnation of US 'border force'

Israeli judge detains teen until trial for viral ‘slap video’

Arab league slams US freeze of Palestinian funding

Dubai billionaire to sell 15 percent Damac stake

Britain to put women at heart of peace work in Iraq, Nigeria, South Sudan

Saudi to give Yemen government $2bn bailout

US withholds $65 million from UN agency for Palestinians

Saudi Arabia intercepts new Yemen rebel missile attack

Syria Kurds vow to cleanse enclave from Turkish 'scourges'

Israeli police find missing Briton’s belongings in desert

Algeria gas plant workers mark five years since jihadist siege

UN says over 5000 children killed or injured in Yemen war

European leaders’ response to Iran protests raises questions

Erdogan to visit Pope Francis next month

Iran slams US-backed 'border security force' in Syria