Saudi Cabinet gives final approval for 5% VAT

The Saudi Cabinet has given its final approval for a region-wide value added tax which will be implemented in the GCC from next year.

In a session chaired by King Salman, the Cabinet “decided to approve the Unified Agreement for Value Added Tax,” the official Saudi Press Agency (SPA) said.

“A Royal Decree has been prepared,” it said.

The Cabinet gave its approval after deeming that the kingdom is ready to implement VAT, SPA added.

A VAT of 5 per cent will be imposed across the GCC, following a joint agreement signed in June last year. Certain items like healthcare and food are anticipated to be exempt from the tax.

Each member state is expected to issue its own national VAT tax legislation based on the agreed common principles.

The UAE has already confirmed that around 100 items including essentials such as food, education and healthcare will be exempt from the 5 per cent tax.

The overall system will be based on a destination principle according to which VAT is charged at import and on local supplies of goods and services, and exports are zero-rated, a recent report by PwC said.

Registered businesses will be required to charge VAT on their supplies, and will be entitled to deduct VAT incurred on their purchases, including capital assets and imports.

With falling oil and gas revenues and a need to diversify income sources, the imposition of taxes like VAT has become imperative in the region.

A recent report by EY stated that VAT will add more than $25bn of revenues per annum for the six GCC countries.

The report said VAT would allow the GCC countries to amend their tax policy and other fees and charges and increase infrastructure investments.

Read more: VAT to generate $25bn in annual revenues for GCC countries

The GCC countries have also revealed plans to implement selective taxes on tobacco, and soft and energy drinks this year.

Also read: VAT in the UAE: Who will feel the biggest pinch?