UAE, Saudi Arabia impose 5pc VAT under new taxation system

DUBAI: The dawn of New Year has brought a new taxation system to Saudi Arabia and the United Arab Emirates.

The Value-Added Tax (VAT) will apply to a range of items like food, clothes, electronics and gasoline as well as phone, water and electricity bills, car rentals, city tours, hotel reservations.

VAT, consumption tax imposed on goods and services, is generally paid by individual consumers to businesses, which then transfer the funds to tax authorities.

Other Gulf countries like Bahrain, Kuwait, Oman and Qatar are expected to introduce their own Value-Added Tax (VAT) structure in 2019.

Talking to The News, Managing Partner Sajjad Haider and Co Shahab Haider expressed a hope that there were a lot of positives from the VAT but challenges would remain there for implementation of new system.

United Arab Emirates planned to impose 5 percent tax on most goods and services to boost revenue after oil prices collapsed three years ago. Shahab Haider added that it would bring positive impact on the economy of the UAE.

He believed that the business activities would be more transparent and international financial institutions such as banks would have more reliance on the businesses after implementing the Value-Added Tax (VAT) in the UAE.

All types of food in the UAE, including staples such as bread and rice, will be taxed from today (January 1, 2018). Manager VAT Advisory, Sajjad Haider & Associates Muhammad Adil Abbasi says a VAT rate of 5% for food is still low compared to other countries specially Europe.

“If you compare with Europe, I don't think it's as expensive. The tax rate is still significantly less than the average VAT rate of 20 percent in some European countries”, Muhammad Adil Abbasi said.

The bills of electricity and water, telephone, cars, fuel, jewellery, watches, smartphones, entertainment, dinning out, commercial rents, tenancy contracts, school uniforms, school books, hotel and service apartments would be taxed. While, medical fees, exam fees, air travel, medicines, basic and preventive surgery, residential rents, school fees would be exempted from the Value-Added Tax (VAT).

Manager VAT Advisory, Sajjad Haider & Associates Muhammad Adil Abbasi confidently stated that international investors’ confidence would boost up after the introduction of the Value-Added Tax (VAT). Muhammad Adil Abbasi added that VAT was part of a long-term tax reform to help Gulf countries reduce their dependence on oil revenues.