….both countries still maintain zero tax on income
Saudi Arabia and the United Arab Emirates (UAE) have introduced Value Added Tax (VAT) for the first time in their economic histories. The 5% tax took effect from1 January, 2018 in both countries and it is being applied to the majority of goods and services.
It would be recalled that the Gulf states have long attracted foreign workers with the promise of tax-free living.
According to a news report by EINNews.com the latest fiscal measure by the governments is aimed at increasing revenue in the face of lower oil prices.
The UAE estimates that in the first year, VAT income will be around 12 billion dirhams (£2.4bn; $3.3bn).
According to the report, while petrol and diesel, food, clothes, utility bills and hotel rooms all now have VAT applied 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.