RIYAD: Saudi Arabia and the United Arab Emirates, which have long lured foreign workers with the promise of a tax-free lifestyle, plan to impose a 5 percent tax next year on most goods and services to boost revenue after oil prices collapsed three years ago.
The value added tax, or VAT, will apply to a range of items like food, clothes, electronics and gasoline, as well as phone, water and electricity bills, and hotel reservations. Stores, gyms and other retailers are trying to make the most of the remaining tax free days in Saudi Arabia and the UAE, encouraging buyers to stock up before the VAT is rolled out on Jan. 1, 2018.
Even with a five percent jump in prices, the tax rate is still significantly less than the average VAT rate of 20 percent in some European countries. Meanwhile, Saudi Arabia recently unveiled the biggest budget in its history, with plans to spend 978 billion riyals ($261 billion) this coming fiscal year as the government forecasts a boost in revenue from the introduction of VAT and plans to reduce subsidies. Still, Saudi Arabia is facing a budget deficit until at least 2023. The International Monetary Fund has recommended oil exporting countries in the Gulf introduce taxes as one way to raise non oil revenue.
