Saudi cabinet approves unified VAT levy

01 February 2017

Move is part of the GCC governments’ efforts to increase non-oil revenues

Saudi Arabia’s cabinet has approved the “unified agreement” on value-added tax (VAT) as the hydrocarbon-dependent economies of the region look to develop alternative revenue lines on the back of lower oil prices.

The Saudi cabinet gave the nod to the unified implementation of VAT from beginning of next year at a meeting chaired by King Salman bin Abdulaziz al-Saud in Riyadh. A 5 per cent tax is expected to be levied across members-state – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE – on certain goods following a GCC agreement last June.

“The cabinet approved the unified agreement on value added tax and selective taxes in the GCC-member states,” the cabinet said in a brief statement carried by official news agency SPA. “The cabinet was briefed on a number of general topics on its agenda and issued its directives in this regard,” the statement said without elaborating details.

Earlier reports suggested that the GCC countries have already agreed to implement selective taxes on tobacco, and soft and energy drinks last year.

Boosting non-oil revenues has been a priority for the GCC monarchies which have felt the financial squeeze after the prices of oil fell from mid-2014 peak of $115 to below $30 a dollar last year. They have recovered to $55 level since then. The governments had to run austerity measures and most have introduced plans to radically reform economies to cut dependence on oil.

Withdrawing subsidies, spending cuts and introducing and increasing fees and taxes are part of the measures to control expenses and increase revenues.

The Washington-based International Monetary Fund (IMF) has also recommended for Gulf states to impose revenue-raising measures including excise and VAT to help their adjustment to lower crude oil prices.

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