Saudi VAT: New coronavirus tax rate one of the lowest among advanced economies

A man walks past the Kingdom Centre Tower in Riyadh, Saudi Arabia. (File photo: Reuters)

On Monday, Saudi Arabia announced it would be tripling its value added tax (VAT) rate to 15 percent from July 1, up from 5 percent.

The move comes as the Kingdom also laid out an enormous cost-cutting program to help maintain long-term financial stability in the face of the unprecendented economic fallout of the COVID-19 coronavirus pandemic.

In an interview on Monday, Finance Minister Mohammed al-Jadaan noted that these steps were being taken to protect the jobs and health care of the Saudi Arabian people.

“These are the priorities: the health care of people and the livelihood of people, and we want to make sure that we maintain our fiscal strength so that as the economy gets out of the lockdown, we are able to support the economy,” al-Jadaan told Bloomberg in a telephone interview.

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The Kingdom’s new VAT rate of 15 percent is still comparatively low compared to most developed economies.

Data from the Organisation for Economic Co-operation and Development (OECD), a group of major economies, shows the average VAT rate across members who had the tax in place stood at 19.3 percent.

Meanwhile, in Europe the average is even higher, with VAT across OECD member states averaging 21.4 percent.

VAT rates: Compared

Here’s the VAT rate of all countries in the OECD with VAT compared to Saudi Arabia:

1. Hungary: 27 percent
2. Denmark: 25 percent
3. Norway: 25 percent
4. Sweden: 25 percent
5. Finland: 24 percent
6. Greece: 24 percent
7. Iceland: 24 percent
8. Ireland: 23 percent
9. Poland: 23 percent
10. Portugal: 23 percent
11. Italy: 22 percent
12. Slovenia: 22 percent
13. Europe average: 21.4 percent
14. Belgium: 21 percent
15. Czech Republic: 21 percent
16. Latvia: 21 percent
17. Lithuania: 21 percent
18. Netherlands: 21 percent
19. Spain: 21 percent
20. Austria: 20 percent
21. Estonia : 20 percent
22. France: 20 percent
23. Slovak Republic: 20 percent
24. United Kingdom: 20 percent
25. OECD average: 19.3 percent
26. Chile: 19 percent
27. Germany: 19 percent
28. Turkey: 18 percent
29. Israel: 17 percent
30. Luxembourg: 17 percent
31. Mexico: 16 percent
32. New Zealand: 15 percent
33. Saudi Arabia: 15 percent
34. Australia: 10 percent
35. South Korea: 10 percent
36. Japan: 8 percent
37. Switzerland: 7.7 percent
38. Canada 5 percent

Source: OECD Tax Database

Not all countries in the world impose VAT. Many, such as the US, opt to use a sales tax instead. While VAT is collected by all sellers in every stage of a supply chain, sales tax is only collected by the retailer when a product has reached the end of the supply chain, with end consumers footing the bill.

Read more:

Jobs, health priority in coronavirus spending cuts, VAT hike: Saudi Finance Minister

Coronavirus: UAE has no plans to increase VAT, says Ministry of Finance

Coronavirus: Saudi Arabia’s $26 bln spending cuts scale back Vision 2030, triples VAT

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Last Update: Wednesday, 20 May 2020 KSA 09:58 - GMT 06:58
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