Image copyright Getty Images Image caption Food and fuel are among the things subject to VAT

Value Added Tax (VAT) has been introduced in Saudi Arabia and the United Arab Emirates for the first time.

The 5% levy is being applied to the majority of goods and services.

Gulf states have long attracted foreign workers with the promise of tax-free living.

But governments want to increase revenue in the face of lower oil prices.

The tax kicked in on 1 January in both countries.

The UAE estimates that in the first year, VAT income will be around 12 billion dirhams (£2.4bn; $3.3bn).

No plans for income tax

Petrol and diesel, food, clothes, utility bills and hotel rooms all now have VAT applied.

But some outgoings have been made exempt from the tax, or given a zero-tax rating, including medical treatment, financial services and public transport.

Organisations such as the International Monetary Fund have long called for Gulf countries to diversify their sources of income away from oil reserves.

In Saudi Arabia more than 90% of budget revenues come from the oil industry while in the UAE it is roughly 80%.

Both countries have already taken steps to boost government coffers.

In Saudi Arabia this included a tax on tobacco and soft drinks as well as a cut in some subsidies offered to locals. In the UAE road tolls have been hiked and a tourism tax introduced.

But there are no plans to introduce income tax, where most residents pay 0% tax on their earnings.

The other members of the Gulf Co-operation Council - Bahrain, Kuwait, Oman, and Qatar - have also committed to introduce VAT, though some have delayed plans until at least 2019.</s>Saudi Arabia and the United Arab Emirates (UAE) introduced the Value Added Tax (VAT) for the first time from Monday. It is a 5 % tax on most goods and services to boost revenue. The VAT will be applied to food, clothes, electronics and gasoline, phone, water and electricity bills, as well as hotel reservations, the BBC reported. Some outgoings were exempt from the tax or given a zero-tax rating, including medical treatment, financial services and public transport. The UAE estimates that in the first year, VAT income will be around 12 billion dirhams ($3.3 billion).

“The imposition of VAT will help to raise tax revenues of the Saudi government to be utilised for infrastructure and developmental works,” said Mohammed Al-Khunaizi, a member of the Shoura (consultative) Council. Organisations such as the International Monetary Fund have long called for Gulf countries to diversify their sources of income away from oil reserves. In Saudi Arabia, more than 90 % of budget revenues come from the oil industry while in the UAE it is roughly 80 %.

Both countries have already taken steps to boost government coffers. In Saudi Arabia, this included a tax on tobacco and soft drinks as well as a cut in some subsidies offered to locals. In the UAE, road tolls were hiked and a tourism tax was introduced. But there were no plans to introduce income tax, where most residents pay zero per cent tax on their earnings.

The other members of the Gulf Cooperation Council — Bahrain, Kuwait, Oman and Qatar — have also committed to introduce VAT, though some have delayed plans until at least 2019.</s>SAUDI ARABIA and the United Arab Emirates introduced value-added tax from Monday, a first for the Gulf which has long prided itself on its tax-free, cradle-to-grave welfare system.

Saudi Arabia compounded the New Year blow for motorists with an unannounced hike of up to 127</s>Saudi Arabia and the United Arab Emirates have introduced a five percent value-added tax (VAT) on many goods and services in an attempt to raise budget revenues amid a global slump in oil prices.

The two Gulf countries had long prided themselves on being minimum tax havens fueled by energy export, but the downturn in the oil market has forced them into taking measures to tackle their huge budget deficits. The two Arab kingdoms will receive up to an estimated $21 billion from the new tax in 2018, equivalent to 2.0 percent of GDP.

“The imposition of VAT will help to raise tax revenues of the Saudi government to be utilized for infrastructure and developmental works,” said Mohammed Al-Khunaizi of Saudi Arabia’s Shoura Council, as quoted by Arab News.

The VAT will apply to most products and services, including food, clothing, jewelry, electronics, phone, water and electricity bills, and hotel room bookings. Exceptions include air travel, healthcare, basic surgery and state-funded education. At five percent, the tax is still among the lowest in the world, but the Saudi Ministry of Commerce and Investment announced it will launch inspections to check which businesses don’t comply.

“The inspection tours will be directly supervised by the joint operation room for protection of consumers, which was approved by the Council of Ministers and composed of 18 government agencies,” it said in a statement cited by Arab News.

As well as the new VAT, Saudi Arabia also surprised motorists with an unexpected hike in gas prices of 127 percent, the latest in a series of measures to balance the books. The kingdom has had to freeze building works and civil servants’ salaries, and also recently cut back on electricity subsidies. Last year, Saudi Arabia and the UAE both imposed a 100 percent tax on tobacco products, and a 50 percent tax on fizzy or energy drinks.

READ MORE: Saudi Arabia plans to hike petrol prices by 80% … to just 44 cents per liter

The move towards VAT was made within the framework of an agreement between the member states of the Gulf Cooperation Council (GCC). Bahrain, Kuwait, Oman and Qatar – the other members of the GCC – will likely bring in their VAT at a later date.

There are not yet any plans to bring in an income tax in the Arabian Peninsula nations.</s>Saudi Arabia is expecting a total of SR35 billion ($9.3 billion) in revenue during the first year of applying the value-added tax (VAT), the project manager of VAT at General Authority of Zakat and Tax (GAZT) was quoted as saying in a media report.



Hamoud Al-Harbi affirmed the punitive measures to be adopted strictly for those who have not registered so far, or who violate the laws, reported Emirates news agency Wam.



The Ministry of Commerce and Investment has announced that in cooperation with the General Authority for Zakat and Tax it will intensify inspection tours in markets and commercial firms across the Kingdom to track down irregularities during application of the VAT.



Saudi Arabia started on Monday applying the value-added tax as part of the country's plans to boost revenue. The 5 per cent tax will apply to a wide range of items, including food; clothes; electronics; petrol; phone, water and electricity bills; and hotel reservations.



The tax is imposed by Saudi Arabia within the framework of a unified agreement endorsed by the member states of the Gulf Cooperation Council (GCC). Saudi Arabia has already imposed the excise tax at 100 per cent on tobacco products and energy drinks, and 50 per cent on soft drinks.



The imposition of VAT will help to raise tax revenues of the Saudi government to be utilised for infrastructure and developmental works, Al-Harbi added, noting that VAT will contribute to address challenges and sustain growth.</s>Seeking to increase revenue amid lower oil prices, Saudi Arabia and the United Arab Emirates have for the first time instituted a value added tax (VAT).

The tax, a 5 percent levy applied to the majority of goods and services, kicked in on Jan. 1.

Gasoline and diesel, food, clothes, utility bills and hotel rooms all now have the VAT tax applied.

Some areas have been made exempt from the tax, or given a zero-tax rating, including medical treatment, financial services and public transportation. There also will be no income tax.

Saudi Arabia also introduced a tax on tobacco and soft drinks as well as a cut in some subsidies offered to locals. In the UAE, road tolls have been increased and a tourism tax introduced.

More than 90 of Saudi budget revenues come from the oil industry while in the UAE it is roughly 80 percent.

The UAE estimates that in the first year, VAT income will be around 12 billion dirhams ($3.3 billion).

The other members of the Gulf Cooperation Council – Bahrain, Kuwait, Oman, and Qatar – have also committed to introduce VAT, though some have delayed plans until at least 2019.

Login To Your FaceBook to Make Comments</s>The United Arab Emirates and Saudi Arabia, where residents had long enjoyed a tax-free and heavily subsidised existence, introduced International Monetary Fund (IMF)-backed value-added tax (VAT) on January 1, following an oil slump. A 5% levy is imposed on most goods and services to boost revenue as the collapse in crude prices since 2014 sparked cutbacks.

Although it threatens to slow economic growth at a time when it is already sluggish, the UAE is expected to raise around $3.3 billion from the tax.

Meanwhile, Saudi Arabia, which unveiled the biggest budget in its history, plans to spend $261 billion this fiscal year as the government forecasts a boost in revenue from the introduction of VAT. As part of economic diversification efforts, the kingdom is broadening its investment base and boosting other non-oil income.

Saudi Arabia, the world’s biggest oil exporter and the largest economy in the Arab region, froze major building projects, cut cabinet ministers’ salaries and imposed a wage freeze on civil servants to cope with 2016’s budget deficit of $97 billion. It also made unprecedented cuts to fuel and utilities subsidies. It aims to balance its budget by 2020.

The IMF has recommended oil-exporting countries in the Gulf introduce taxes as one way to raise non-oil revenue. The IMF also recommends Gulf countries to introduce or expand taxes on business profits.

The IMF mideast director Jihad Azour said VAT is part of a long-term tax reform to help Gulf states reduce their dependence on oil revenues. “We believe VAT is an important component of the fiscal adjustment and revenue diversification plans of GCC countries and these measure are necessary for long-term fiscal sustainability,” he said.

Saudi Arabia and the UAE last summer imposed a 100% tax on tobacco products and energy drinks, and a 50% tax on soft drinks.

The VAT will apply to a range of items like food, clothes, electronics and gasoline, as well as phone, water and electricity bills, and hotel reservations, The Khaleej Times reports. Alongside domestic rent, transport (including air travel), healthcare and schooling will be excluded from VAT. Property buyers will not have to worry about VAT on their home purchase as well. Even with a 5% jump in prices, the tax rate is still significantly less than the average VAT rate of 20% in some European countries.</s>Hamoud Al-Harbi, the project manager of VAT at General Authority of Zakat and Tax (GAZT), told the Emirates News Agency (WAM) that a total of SAR 35 billion in revenue is expected during the first year of applying the tax in the Kingdom.

The tax is imposed by Saudi Arabia within the framework of a unified agreement endorsed by the member states of the Gulf Cooperation Council (GCC). Saudi Arabia has already imposed the excise tax at 100 percent on tobacco products and energy drinks, and 50 percent on soft drinks.

The imposition of VAT will help to raise tax revenues of the Saudi government to be utilised for infrastructure and developmental works, he added, noting that VAT will contribute to address challenges and sustain growth.

He affirmed the punitive measures to be adopted strictly for those who have not registered so far, or who violate the laws. The Ministry of Commerce and Investment has announced that in cooperation with the General Authority for Zakat and Tax it will intensify inspection tours in markets and commercial firms across the Kingdom to track down irregularities during application of the VAT.</s>DUBAI: Saudi Arabia and the United Arab Emirates introduced value-added tax from Monday, a first for the Gulf which has long prided itself on its tax-free, cradle-to-grave welfare system.

Saudi Arabia compounded the New Year blow for motorists with an unannounced hike of up to 127 percent in petrol prices with immediate effect from midnight.

They are the latest in a series of measures introduced by Gulf oil producers over the past two years to boost revenues and cut spending as a persistent slump in world prices has led to ballooning budget deficits.

The five percent sales tax applies to most goods and services and analysts project that the two governments could raise as much as $21 billion in 2018, equivalent to 2.0 percent of GDP.

But it marks a major change for two super-rich countries where the mall is king. Dubai has long held an annual shopping festival to draw bargain hunters from around the world to its glitzy retail palaces.

Saudi Arabia has deposited billions of dollars in special accounts to help needy citizens face the resulting rise in retail prices.

The other four Gulf states — Bahrain, Kuwait, Oman and Qatar — are also committed to introducing VAT but have delayed the move until early 2019.

None of the Gulf states levy any personal income tax and none have any plans to do so.

The International Monetary Fund has repeatedly urged Gulf states to diversify their revenues away from oil, which accounts for more than 90 percent of the Saudi budget and 80 percent in the UAE.

Both Riyadh and Abu Dhabi asked all companies with earnings of $100,000 or more a year to register in the VAT system.

The UAE finance ministry said that VAT returns will be used “for infrastructure development … (to) upgrade public services … and boost UAE economy competitiveness.”

The hike in fuel duty in Saudi Arabia was the second in two years.

But it still leaves petrol prices as some of the lowest in the world.

High-grade petrol rose 127 percent from 24 cents a liter ($1.09 a gallon) to 54 ($2.46), while low-grade petrol rose 83 percent from 20 cents a liter (91 cents a gallon) to 36.5 ($1.66).

‘They’ll tax the air’

 The introduction of VAT coupled with the increase in fuel duty is expected to bring an abrupt end to a year of negative inflation in Saudi Arabia.

Riyadh-based Jadwa Investment predicted that inflation could reach as much as five percent after the new measures.

Saudis reacted sarcastically on social media to the new sales tax.

“They are even taking taxes on car parking. I am afraid they will next tax the air,” wrote Ahmed bin Fatima.

Saudi Arabia, whose economy contracted by 0.5 percent last year for the first time since 2009, has introduced a raft of measures to raise revenue and cut spending as it bids to balance its books.

Last month, it cut the government subsidy on electricity supply for the second time in two years, leading to a sharp rise in bills.

Riyadh posted budget deficits totaling $260 billion over the past four fiscal years and does not expect to balance its books before 2023.

To finance its mounting public debt, the kingdom has withdrawn around $250 billion from its reserves over the past four years, reducing them to $490 billion.

It has also borrowed around $100 billion from the international and domestic markets.</s>Saudi Arabia and the United Arab Emirates are ringing in the new year with the introduction of a five percent value-added tax (VAT) on most goods and services, in an effort to boost revenue and revive their oil-dependent economies.

The tax, which goes into effect on Monday, will be imposed on a wide range of commodities, including food, clothes, fuel, entertainment, electronics, and telephone, water and electricity bills.

Rent, real estate sales, airline tickets and school fees are excluded from the scheme.

The move is part of a region-wide measure agreed upon by the six Gulf Cooperation Council (GCC) member states in Riyadh in 2016.

"The imposition of VAT will help to raise tax revenues of the Saudi government to be utilised for infrastructure and developmental works," Mohammed Al-Khunaizi, a member of Saudi's Shoura Council, said on Sunday.

The other GCC members - Qatar, Bahrain, Oman and Kuwait - have until January 1, 2019, to impose the tax.

Tim Callen, the International Monetary Fund (IMF) Mission Chief for Saudi Arabia, told Al Jazeera that the introduction of the VAT is "an important step in the right direction" and "likely to be positive for investors in the longer term".

"Government revenues in the GCC are very reliant on the proceeds from the sale of oil," he said. "This makes them vulnerable to swings in the oil price. It is important that the GCC countries diversify their sources of government revenue to reduce this reliance."

According to IMF estimates, the planned VAT rate in the Gulf nations will raise additional revenues of some 1.5 to 3 percent of non-oil gross domestic product, depending on the country.

Both Saudi Arabia and the UAE - like other Gulf nations - have suffered since oil prices crashed four years ago.

In June last year, on the recommendation of the IMF, Saudi Arabia and the UAE officially applied a 100 percent selective commodity tax on tobacco and energy drinks and 50 percent on soft drinks.

In addition, since last July, Saudi Arabia has levied fees on expatriates' dependents of all nationalities. Corporate income taxes are also imposed in some Gulf nations.

However, experts say the implementation of the new value-added tax will not offer a "big boost" to the two oil-dependent nations.

"It is unlikely to impact the economies or the GDP. Both Saudi Arabia and the UAE have outward-looking economies that are not based on domestic consumerism," Ellen Wald, author of the upcoming book Saudi, Inc. and a non-resident scholar at the Arabia Foundation, told Al Jazeera.

Jane Kinninmont, a senior research fellow at the Chatham House think-tank in London, said the effect on the overall economy would be mixed.

"VAT transfers money from consumers to the government, so it will help boost the government's non-tax income, but may also dampen private consumption," she said.

In December, Saudi Arabia unveiled its largest state budget - a record 978 billion riyals ($261bn) - for the current fiscal year.

The Kingdom projects it will generate about $209bn in revenue this year but run a deficit until 2023, according to the finance ministry.

Crown Prince Mohammed Bin Salman is spearheading the government's Vision 2030 masterplan to revitalise and diversify the Kingdom's oil-dependent economy.

Saudi oil giant Aramco will sell five percent of its shares in what could be the world's largest initial public offering, expected to raise $100bn this year. The deal is at the heart of Saudi Arabia's economic reform programme.

Roby Barrett, a Gulf expert at the Middle East Institute in Washington, DC, noted: "My view is that entire societies don't get transformed in a decade. It takes generations and generations, and so we'll see what happens by 2030."

Uniforms, books and bus fees at schools will be taxed under the VAT scheme, as will higher education in the UAE. Fuel prices in the UAE will experience a four to six percent rise compared to last month, according to the Ministry of Energy.

Experts are predicting a 1.5 percent increase in living costs, the Abu-Dhabi-based National newspaper reported.

Meanwhile, Saudi Arabia is set to raise prices for domestic cooking gas and jet fuel by about 80 percent in January 2018, according to a Bloomberg report.

"On a more long-term scale, as a general rule with VAT, the lower-income residents feel the impact of a VAT more because they spend a larger percentage of their incomes and wealth," Wald said.

"However, in comparison to most other developed countries, the population will have little to complain about."

Still, there are concerns among residents over the increase in their household expenditures.

One expatriate and Dubai resident, who spoke to Al Jazeera on condition of anonymity, said the VAT would be "one tough pill to swallow for many".

"I think it defeats the whole purpose of people coming into Dubai and investing their time, life, money and career, thinking they will save that extra bit of money, considering it was a tax-free city," he said.

"Initially, it might not rattle the financial equation of my household a great deal, but it will surely creep in on us as they increase it every year."
Value Added Tax (VAT) has been introduced in Saudi Arabia and the United Arab Emirates for the first time.