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SMEs will find it difficult to adapt to VAT.
SMEs will find it difficult to adapt to VAT.

Saudi VAT Will Raise Prices, Hurt Demand

Saudi VAT Will Raise Prices, Hurt Demand

The introduction of value-added tax next year will directly impact the prices of commodities and services, analysts said.

“The price increase will reduce the demand for goods, and this will have a negative effect on companies, most of which will likely take several measures to keep their business,” Khalid Al-Zaidi, a financial analyst, said, Arabian Business reported.

He hoped the price rise would not affect the quality of goods and services. “If it happened, it is a negative indication. However, the price hike will push consumers to find ways to save money,” he said. Businesses must register for VAT by the deadline of Dec. 20, and the official introduction starts on Jan 1.

Al-Zaidi also said there would be a sharp drop in demand for luxury goods and accessories. Al-Zaidi, who is also the director of the Jeddah-based Al-Zaidi Financial Education Center, said that it is possible that the government will impose additional taxes on other products or increase VAT from 5%.

“If the results are found to be supportive to the country’s economy and helps citizens to rationalize their consumption habits, additional taxes will be implemented,” he said.

Al-Zaidi anticipated that small and medium-sized enterprises will find it difficult to adapt to VAT, making it difficult to significantly reduce their expenses to survive.

As for imposing VAT on private education, Al-Zaidi said that investors in this sector would reduce fees to retain their market share. “Otherwise, their investment would be severely affected,” he said.

The General Authority of Zakat and Tax has urged businesses with annual revenues of more than SR1 million ($266,640) to expedite their VAT registration process and ensure their readiness for its implementation.

Businesses that fail to register in time will face fines of up to SR10,000 ($2,666) and the suspension of several critical government services, including issuing work permits, changing business activity, issuing visas, transferring workers’ sponsorship and other services provided by the government and its agencies.

The GAZT first imposed a selective tax on energy drinks, cigarettes and soda drinks. It also increased the visit visa fee, exit re-entry fee and dependent fee for expatriates.

 

 

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