Saudi Cabinet Approves 5% VAT

The cabinet in Saudi Arabia gave its approval for a region-wide 5% value added tax that will start next year in the Gulf Cooperation Council (GCC).

In a cabinet session that King Salman chaired, the cabinet approved the Value Added Tax Unified Agreement, said the Saudi Press Agency or SPA.

The press agency also said that a Royal Decree was being prepared.

The cabinet’s approval was given after it deemed that the kingdom was at a point where it was ready for the implementation of VAT, said the news agency.

A 5% VAT is to be imposed across all of the GCC following an agreement jointly signed last year in June. Certain items such as food and healthcare are believed to be exempt from this tax.

Each of the member states of the GCC will likely issue its own legislation for the VAT based upon the common principles that have been agreed upon.

The UAE already has confirmed that close to 100 items that include essentials like food, healthcare and education will be items that are exempted from paying the 5% VAT.

The overall VAT system is to be based upon a destination principle according to which it will charge VAT on imports and on supplies of local goods and services. A recent report said that exports fall under the zero-related.

Registered businesses are going to be required to charge the VAT on supplies, but can deduct the VAT incurred on purchases, including imports and capital assets.

With revenues from gas and oil continuing to drop and the need of diversifying sources of income, the imposition of VAT or other taxes has become somewhat imperative across the entire region.

A recent regional report stated that the VAT would add over $25 billion of new revenues each year for the six member countries of the GCC.

The report also mentioned that VAT would allow countries in the GCC to amend their current tax policy as well as other charges and fees and increase investments on infrastructure.

The countries in the GCC have revealed as well their plans to implement other selective forms of taxes for items such as soft drinks, energy drinks and tobacco during 2017.

The entire GCC region has been hit hard by the plunge in the price of gas and oil since the middle of 2015. With most of the state relying on almost all of their revenue coming from the exporting of gas and oil, many have faced huge budget deficits for the first time.

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