Maybe you have been wondering about Saudi Arabia’s VAT. Yes, there is VAT in Saudi Arabia. For the first time, the Gulf Cooperation Council (GCC) countries are introducing Value Added Tax (VAT). Saudi Arabia is one of the countries.
Saudi Arabia has already published the draft VAT law as part of its continuing economic reforms. The VAT will be effective from January 1st 2018. “Sin” tax, which in most cases is a domestic excise duty on luxury goods and services, will also be introduced.
However, no income tax or wealth tax will be introduced. This is in the short term. We do not know whether it will be introduced in the future. Let us wait and see what happens.
VAT in the GCC countries
There are GCC member countries that are set to introduce VAT and “sin” tax. These are Qatar, Kuwait, Oman, the UAE, and Bahrain. This move to introduce taxes in the region was agreed in 2016 by the Supreme GCC Council.
However, unlike in Kenya, where the standard VAT rate is 16 %, the rate in Saudi Arabia has been proposed at 5 %. This will be a harmonized tax rate across the six GCC countries.
What does this mean for the GCC residents? The introduction of the GCC VAT has far-reaching consequences for the GCC residents. Both local and the millions of workers in the region, Kenyans included.
For example, prices will increase by 5% VAT, plus any other increases from the “sin” tax on goods and services that are subject to the introduced taxes.
The price increase will result in a higher cost of living across the six GCC countries. If the VAT introduction is not simultaneous, there may be instances of smuggling. This will be across the borders of the member countries.
This will increase competition across the countries. However, the good news is that, for the time being, the residents will not share their income and wealth with the government.
Why VAT?
But why is the region introducing VAT? Saudi Minister of Finance Ibrahim Al-Asaaf was quoted explaining that VAT has the following benefits:
- Will be a source of revenue for the government;
- Easier to administer;
- Not easy to evade;
- It is supported by the people.
This means that the revenues from oil-rich countries, are dwindling,. Oil and gas, which are the main export commodities from the GCC countries, are dwindling.
This has necessitated the regional governments to seek alternatives to raise revenue. Taxes is the other alternative.
The GCC countries are likely to introduce other taxes such as income tax soon.
Effect on Kenya taxpayers
For the Kenyan and other East African taxpayers, the implication of the introduction of VAT in the GCC countries is in four key areas:
- Cost of living in GCC countries;
- Imports;
- Cash remitted back home;
- Potential jobs.
Cost of living in GCC countries
Many Kenyans and East Africans are living and working in GCC countries. With the price of the goods and services that will be subject to VAT and the “sin” tax, the cost of living will also increase in all the GCC countries.
The workers already have contracted salaries, which may not be revised immediately.
Imports
There are many imports by Kenyans and East Africans from the GCC countries. The imports are for such goods as second-hand vehicles and dates and commodities such as oil.
With the introduction of VAT, the prices of goods and services will increase.
Therefore, Kenyan and East African importers will pay 5 % more for all imports from GCC countries unless they can claim back the VAT.
Cash remitted back home
Many Kenyans and East Africans work in GCC countries. Each month, they remit part of their salaries back home to support their families, like savings or purchase of assets.
With the introduction of VAT and the “sin” tax followed by the price increase, the workers will be left with less money.
Hence, the amount of money remitted back home will decrease at the country and regional and country levels.
Potential jobs
Kenyans and East Africans are looking for jobs internationally. Before one accepts a job, he or she weighs it against the cost of living in that country.
The introduction of VAT and “sin” tax in the GCC will result in increased prices of goods and services across the region and the resultant high cost of living.
Therefore, any Kenyan and East African seeking employment in the GCC countries will have to consider the tax implications on their potential salary.
Hence, the previously attractive salaries may no longer be as attractive unless the salaries will be increased. Therefore, some Kenyans and East Africans may not travel to work in GCC countries in the future unless salaries are competitive enough to mitigate the increased cost of living.
Therefore, the introduction of VAT and any other tax in Saudi Arabia and other GCC countries has implications for Kenyans and other East African residents. This will result in decreased VAT and income tax in Kenya, regardless of the amount.
The increase in the prices of goods and services due to VAT and “sin” tax in the GCC countries will have a spillover effect on East Africa.
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Disclaimer
This post provides a general overview and guidance, and does not constitute professional advice in any way. Consequently, www.taxkenya.com, its owner, or associates do not take any responsibility for the results of any action taken based on the information in this post or for any errors or omissions. Kenyan taxpayers must always rely on the most current information from the KRA. The tax industry in Kenya is very dynamic.
