VAT becomes a reality in parts of the GCC
LONDON - The new year brought new realities to Saudi Arabia and the United Arab Emirates with both Gulf Arab countries working to reduce budget deficits with the introduction of a value added tax (VAT).
Both Gulf Cooperation Council (GCC) members introduced a 5% VAT, among the lowest rates in the world, on most goods and services. That effectively ended the tax-free lifestyles their populations were accustomed to. The new taxes could see the two countries raise as much as $21 billion for fiscal year 2018.
The GCC agreed on implementing the VAT in 2016. The UAE and Saudi Arabia, the GCC’s two largest economies, prepared for the VAT over the past year and are reforming their economies. Both are trying to reduce dependency on the energy sector.
Oman, Bahrain, Kuwait and Qatar are committed to introducing the VAT in 2018 or 2019.
The introduction of the VAT is part of Saudi Arabia’s Vision 2030 economic reform plan, championed by Crown Prince Mohammed bin Salman bin Abdulaziz. It aims to reduce unemployment, stimulate the private sector and modernise the Saudi economy.
The introduction of the VAT in the UAE “will reflect positively on the country’s developmental drive as it ideally goes in harmony with the government’s vision to ensure a robust, sustainable and diversified economy to ultimately wean the country off oil in the future,” said Saif Mohammad al-Hajiri, chairman of Abu Dhabi’s Department of Economic Development.
“The department has ensured the development of a well-thought-out strategy across the emirate of Abu Dhabi to control prices and open up channels of communication with consumers and monitor any misuse of the tax application,” he added
The introduction of the VAT was not universally well received. Compounding matters for Saudis has been the sharp rise in electricity and petrol prices, increases that went into effect January 1. Saudis saw the price of low-grade petrol rise 83% and high-octane fuel prices spiked 127%.
Despite the huge price rise, the kingdom enjoys some of the lowest fuel rates in the region. That reality did not prevent angry consumers from venting on social media where hashtags on Twitter included #VAT_comes_into_effect and #Our salary_does_not_meet_our_needs2.
“Citizens are overwhelmed. They don’t know if they should spend their salary on their kids and household, or on merchants or on the government. They don’t know what to do!” tweeted one Saudi user, the BBC reported.
Anticipating the difficulties, Saudi authorities in December introduced the Citizens Account programme, which is designed to help low- and middle-income families cope with the austerity measures. The government has made its first instalment of $530 million into the programme, with 3.7 million households signed up, Saudi officials said.
In the GCC, the UAE, Oman and Qatar also significantly increased fuel prices, with the hashtag “Fuel prices officially raised” trending in those countries.