Saudi Arabia and United Arab Emirates (UAE) became first countries of Gulf Cooperation Council (GCC) to introduce Value Added Tax (VAT) for the first time to increase their revenue away from oil reserves. The other members of 6 member GCC– Bahrain, Kuwait, Oman and Qatar — have also committed to introduce VAT, though some have delayed plans until at least 2019.
The rate for VAT is set at 5% on the majority of goods and services including petrol and diesel, food, clothes, utility bills and hotel rooms. Number of goods and services including medical treatment, financial services and public transport have been placed in either zero rated or in exempt category.
In Saudi Arabia, more than 90% of budget revenues come from oil industry while in UAE it is roughly 80%. Organisations such as the International Monetary Fund (IMF) had long called for Gulf countries to diversify their sources of income away from oil reserves. Both countries have already taken steps to boost government coffers.
Value Added Tax (VAT)
A VAT is type of consumption tax that is placed on product whenever value is added at stage of production and at point of retail sale. It is one of the most common types of consumption tax implemented in more than 150 countries around the world. It is charged at each step of the ‘supply chain’. Final consumers generally bear the VAT cost while businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.