With the introduction of Value Added Tax (VAT) from January 1, 2018 the Kingdom will witness a sudden increase in price of goods and services.
Khalid Al-Zaidi, a financial analyst and director of Jeddah based Al-Zaidi Financial Education Center, said the increase in price followed by a drop in demand for goods will affect businesses adversely causing them to adopt new strategies and policies to keep their business running.
If the price hike leads to reduction in quality of commodities and services, then it would be a negative indicator for the country, he added. Moreover, the price hike will force consumers to find alternate ways to save money.
Al-Zaidi anticipated a sink in the demand for luxury commodities and accessories.
With the opening of international markets through e-commerce as well as consumers looking for cheaper alternatives, companies will look forward to provide the best service at competitive prices.
If the implementation of VAT is found to be a boost to the country's economy and has helped to rationalize the consumption habits of the citizens, then, the government will most probably impose tax on additional sectors or increase the percentage of VAT to more than 5 percent in future, added Al-Zaidi.
The implementation of VAT on petroleum products will reduce the domestic consumption of oil products thereby increasing the quality of the country's oil reserve. With increased oil export to the global market, Saudi Arabia can attain a leading global position and improve its oil pricing policy within the Organization of the Petroleum Exporting Countries (OPEC).
Al-Zaidi said that small and medium sized companies and organizations would find it extremely difficult to survive with the implementation of VAT. Moreover, the imposition of VAT on private education is highly challenging as students have already begun migration to government run schools.
Since the commencement of VAT registration on August 28, 2017, more than 60,000 businesses have completed its registration procedures. The General Authority of Zakat and Tax (GAZT) encouraged businesses earning more than SR 1 million to speed up their VAT registration process.