RIYADH: Last month Saudi Arabia’s General Authority of Zakat and Tax (GAZT) released the final implementing regulations to legislation governing the new GCC-wide value-added tax (VAT). The move, which was announced on GAZT’s website and in the official gazette, is a milestone for companies operating in both the Kingdom and the wider GCC, as they prepare for full implementation of the law on January 1, 2018. The 5% VAT, which will be rolled out across the six member states of the GCC under a unified agreement, will apply to all goods and services, though the treatment of certain sectors will be left up to individual countries. Financial services – to which an exemption is generally applied – as well as education, health care, real estate and local transport all fall into this category. Tax revenue to help offset lower hydrocarbons receipts
The new tax is part of efforts by countries in the region to develop additional public revenue streams. While oil prices have rebounded somewhat this year, with Brent crude trading at around $57.50 per barrel as of mid-October, this is still roughly half its 2014 peak. “The introduction of a VAT regime is representative of the economic climate in which we find ourselves. That can also be applied to the region at large,” Mishal A Al Hokair, deputy CEO and general manager of the entertainment division at Al Hokair Group, an entertainment and hospitality conglomerate, told OBG. “The reality of lower hydrocarbons revenue means we must adapt to sustain ourselves in the long term – this is the new reality.”Direct revenue from the tax is expected to bring in the equivalent of 1.6% of the Kingdom’s GDP annually, according to estimates from the IMF. In addition to bolstering government revenue, the introduction of VAT brings Saudi Arabia more in line with countries on the MSCI Emerging Markets Index, for which the Kingdom has been listed as a possible addition. Indeed, many MSCI countries have applied even higher rates; Malaysia has a 6% goods and services tax, while Russia and Turkey have an 18% VAT.
