No income tax, but VAT starts in 2018

Saudi Minister of Finance Ibrahim Al-Assaf. (AP)

RIYADH: The Kingdom does not plan to introduce income tax for individuals, but value-added tax (VAT) would be introduced by 2018, according to Saudi Finance Minister Ibrahim Al-Assaf.
Al-Assaf said Wednesday in a statement that the decision to introduce VAT had been agreed upon at the 102nd meeting of GCC finance ministers in Riyadh. The discussions had taken place at a gathering of the Committee on Financial and Economic Cooperation, which includes ministers from other GCC states.
The decision was based on an agreement taken by the Supreme GCC Council earlier this year to introduce VAT in the six GCC countries, said Assaf. It was agreed that VAT would be introduced by 2018.
Al-Assaf said VAT, which would be imposed on certain commodities, was much easier to administer than other taxes, many of which were easy to evade.

In an interview with The Economist in January, Deputy Crown Prince Mohammed bin Salman, second deputy premier and defense minister, had indicated that VAT would be introduced but no income, or wealth taxes. “We’re talking about taxes or fees that are supported by the citizen, including VAT and the sin tax. They will create good revenues, but not the only revenues,” he was quoted as saying. Other reports indicate that the GCC bloc would introduce VAT of up to 5 percent. The tax would exclude 95 food items, but would be applicable for all citizens and residents. Health, education and social services would likely be excluded.
Introducing VAT is considered a major economic reform in the GCC countries, which have minimal tax systems and no tax on income, although some levy fees such as road tolls.
To limit smuggling and damage to competitiveness, analysts say, the Gulf countries should introduce VAT regionally rather than individually, at different times.
According to analysts, VAT could provide a number of benefits to the GCC countries. If levied at a rate of 5 percent, it could yield anywhere from 0.8 percent to 1.6 percent of gross domestic product, depending on the country.