The International Monetary Fund (IMF) has suggested that the value-added tax (VAT) should be doubled from 5% to 10% in Saudi Arabia in consultation with the other Gulf countries.
Analysts expect the hike in VAT rate will come only after 2021 once Kuwait and Oman will also be ready to implement it and as a customs union, the increase makes sense across the GCC countries.
The UAE and Saudi Arabia introduced the 5% value-added tax from January 2018 with both the countries surpassing their tax collection targets.
Thaddeus Best, an analyst at Moody’s Sovereign Risk Group, said as a customs union, it is logical that GCC countries would seek to keep their VAT rates harmonized in order to prevent tax arbitrage opportunities emerging within the GCC.
The Kingdom’s non-oil revenues last year increased by 59%, buoyed by the VAT, excises, expatriate levy, and proceeds from the settlement agreements. IMF estimated that the VAT rate increase will add 2.0% to the Kingdom’s GDP in 2024.