Saudi Arabia’s move to impose various type of taxes on commodities, goods and services as well as residency and visit visa fees and charges on dependants of expats is expected to boost the state’s finances.
Selective commodity tax
Saudi Arabia officially applied the selective commodity tax on June 11, 2017. The tax will be imposed on three commodities - 100 percent for tobacco and its derivatives, 100 percent for energy drinks, 50 percent for soft drinks. It would be collected in one phase from the suppliers and manufacturers, and these taxes are expected to increase the state’s budget revenues.
Selective taxation might motivate many to quit these harmful substances instead of the huge budgets allocated annually to treat patients as a result of consuming these substances. Increasing its prices will also reduce the number of the children and youth who will start using it, as they are the targeted category by companies producing these products.
In the same context, the General Authority for Zakat and Income predicted that Saudi Arabia’s revenues will reach more than $3.2 billion (SR 12 billion Saudi riyal) annually, after imposing the selective commodity tax.
VAT in 2018
Value-added Tax (VAT) is an indirect tax. This tax may sometimes be referred to as a type of depreciation tax. In countries with a value-added tax system, most goods and services purchased and sold are charged.
The Saudi Ministry of Finance will begin to impose a value-added tax to be applied in the GCC starting from 2018. It is expected to have repercussions on many economic sectors.
This tax is levied on goods and services during the various stages of the supply chain, including the final selling stage indirectly, which is imposed on the difference in the cost price and the sale price of the goods, and on the cost of production.
It will be imposed on all products and services, as a percentage of the value of the product, so that these companies and sales points will collect consumer taxes for the governments. The products exempted from this tax do not exceed 100 products, while the Kingdom's estimated revenues from VAT are estimated to be $10.65 billion (40 billion Saudi riyals).
Differences between selective commodity tax and value-added tax:
1. Each product to which the selective commodity tax will be applied will also be subject to VAT.
2. Selective tax is a form of sales tax that differs from VAT. It is specified on products that cause damage to health and can be extended to foods that cause the spread of obesity and diabetes.
3. Selective goods tax ranges from 50% to 100% , while VAT is estimated at 5 percent.
The decision to increase the residency and visitor visa fees was implemented as a step towards balancing budget revenues and expenditures by 2020.
A monthly fee for expats and their companions will be applied in 2017 to expatriate workers in the Kingdom at SR 100 Saudi riyal for each facility, which aims to garner $266 million (1 billion Saudi riyal) by the end of the year.
In 2018, a monthly fee of 400 Saudi riyals will be levied on every employee in a company whose number of foreign employees exceed the number of Saudis, and 300 Saudi riyals fee on every employee in a company whose number of foreign employees is less than the number of Saudis, and 200 Saudi riyals on every person these foreign employees sponsor.
Thus it is expected to collect $6.39 billion (24 billion Saudi riyals) in 2018, from the program of financial compensation for expats.
In 2019, the expatriate labor fees in a company whose number of foreign employees exceed the number of Saudis will be increased to 600 riyals monthly, and in sectors with a lower number of Saudis to 500 riyals per month, with an increase of each companion fees to be 300 riyals per month. This is expected to collect $11.72 billion (44 billion Saudi riyals).
In 2020, 800 Saudi riyals will be collected on every employee in a company whose number of foreign employees exceed the number of, while it will be 700 Saudi riyals for every employee in a company whose number of foreign employees is less than the number of Saudis. This is expected to collect $17.3 billion (65 billion Saudi riyals).