Saudi Arabia estimates it will raise more than SR35bn ($9bn) in revenue on the first year of its implementation of VAT.

The kingdom introduced VAT on 1 January, as part of the government’s broader objective to insulate the economy from low oil prices by reducing subsidies and plug a notable gap in the national budget.

The 5 per cent tax will apply to almost all goods and services, except medicines, essential drugs and medical equipment.

Hamoud al-Harbi, project manager of VAT at Saudi Arabia’s General Authority of Zakat & Tax (GAZT), has told the UAE’s Emirates News Agency (Wam) that the SR35bn that is expected to come into the state’s treasury in 2018 from the imposition of VAT will be invested in infrastructure and other development projects.

Al-Harbi said authorities will prosecute entities that have not registered for the VAT taxation regime so far, as well as those that violate the rules.

Saudi Arabia’s Commerce & Investment Ministry has also announced it will partner with GAZT to conduct inspections of retail centres, commercial establishments, fuel stations and other entities covered under the VAT structure to track down irregularities during its initial implementation.

Saudi Arabia and the UAE began applying VAT this year based on the framework of a unified agreement endorsed by the member states of the GCC. Riyadh already imposes an excise tax of 100 per cent on tobacco products and energy drinks, and 50 per cent on soft drinks.

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