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Saudi Arabia and the United Arab Emirates introduced value-added tax starting January 1, a first for the Gulf which has long stood up without implementing taxes.
Saudi Arabia started the New Year blow for motorists with an unannounced immediate hike of up to 127% in petrol prices.
They are the latest in a series of measures introduced by Gulf oil producers over the past 2 years boosting revenues and cutting expenditures as a persistent slump in world prices which led to swollen budget deficits.
The 5% sales tax applies to most goods and services. Analysts project that the two governments could raise as much as $21 billion in 2018, equivalent to 2.0 % of GDP.
Saudi Arabia started the New Year blow for motorists with an unannounced immediate hike of up to 127% in petrol prices.
They are the latest in a series of measures introduced by Gulf oil producers over the past 2 years boosting revenues and cutting expenditures as a persistent slump in world prices which led to swollen budget deficits.
The 5% sales tax applies to most goods and services. Analysts project that the two governments could raise as much as $21 billion in 2018, equivalent to 2.0 % of GDP.
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The other four Gulf states -- Bahrain, Kuwait, Oman and Qatar -- are also committed to follow VAT introduction expected to commence early 2019.
The Gulf states did not levy any personal income tax nor planning 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 Saudi arabia and the United Arab Emirates directed all companies earning $100,000 or more per annum to register in the VAT system.
VAT returns in the UAE will be used "for infrastructure development ... (to) upgrade public services ... and boost UAE economy competitiveness."
High-grade petrol rose 127% from 24 cents per liter($1.09/gallon) to 54 ($2.46), while low-grade petrol rose 83 percent from 20 cents per liter (91 cents/gallon) to 36.5 ($1.66).
Taxes on diesel and kerosene remained as is.
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 predictions said that inflation could reach as much as 5% after the implementation of the VAT.
The new sales tax draws sarcastic reactions on social media
"They are even taking taxes on car parking. I am afraid they will next tax the air," wrote Ahmed bin Fatima.
Riyadh posted budget deficits summed up to $260 billion over the past four years and does not expect to balance its books before 2023.
, The kingdom has withdrawn around $250 billion from its reserves over the past four years, reducing them to $490 billion to finance its mounting public debt.
$100 billion has also been borrowed by Saudi Arabia from the international and domestic markets.
Source: The Economic Times
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