Saudi Arabia and the United Arab Emirates introduced value-added tax from Monday, a first for the Gulf. Saudi Arabia also announced a hike of up to 127 percent in petrol prices with immediate effect from midnight.
They are the latest in series of measures introduced by Gulf oil producers over the past two years to boost revenues and cut spending. The five percent sales tax applies to most goods and services and analysts project that the two governments could raise as much as $21 billion in 2018, equivalent to 2.0 percent of GDP.
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Dubai has long held an annual shopping festival to draw bargain hunters from around the world to its glitzy retail palaces. Saudi Arabia has deposited billions of dollars in special accounts to help needy citizens face the resulting rise in retail prices.
The other four Gulf states - Bahrain, Kuwait, Oman and Qatar – are also committed to introducing VAT but have decided to delay the move until early in 2019. The hike in fuel duty in Saudi Arabia was the second in two years. But it still leaves petrol prices as some of the lowest in the world. Duty on diesel and kerosene remained unchanged.
Saudi Arabia has introduced a raft of measures to raise revenue and cut spending as it bids to balance its books. Last month, it slashed the government subsidy on electricity supply, leading to a sharp rise in bills.
Riyadh posted budget deficits totaling $260 billion over the past four fiscal years and does not expect to balance its books before 2023. To finance its mounting public debt, the kingdom has withdrawn around $250 billion from its reserves over the past four years, reducing them to $490 billion.