Analyzing the importance of VAT in Saudi Budget 2017

VAT provision in Saudi Budget 2017 is likely to have substantial impact on the quality and volume of consumption in the country

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The value added tax (VAT) provision in Saudi Budget 2017 is likely to have substantial impact on the quality and volume of consumption in the country. This is because the application of the VAT will not only be inclusive but will also help consumer goods and services that may fall within its scope in the future.

Gulf countries are expected to implement VAT system by the beginning of next year, on all the stages of production of goods and services. The revenue generated from VAT are expected to amount to SAR 25-30 billion, which will contribute toward bridging the budget deficit.

VAT is applied in more than 150 countries around the world, since the strength of any economy is achieved through the diversification of its production base and not by relying on a single source of income, especially in light of the reduced subsidies on oil, water and electricity. To some extent, it contributes toward supporting state revenues, including at least 50 billion riyals annually at a critical stage, where the prices of oil dropped more than 60 percent.

Managing government support and diverting it to the target groups is considered as a top priority in enhancing the efficiency of spending and reducing financial waste. It has raised the price of fuel although it is still the cheapest on the international levels.

Managing public debt

Public debt is expected to reach up to SAR 344 billion by the end of this year. An office for the management of public debt will be established and will help, most notably, in obtaining the necessary funding for paying off deficit on better terms. This is what happened during the $17.5 billion international bond issuance during the month of October.

Saudi Arabia got bonds at a price that is lower than before, due to its strong economic and financial capacity. The white land tax is also expected to contribute toward financing of housing units for social categories who are mostly in need, like widows and orphans.

Economists believe that the imposition of charges or fees for expatriates would enhance the value of investment and support the budget, especially considering the size of the total labor transactions from expatriates are currently estimated at more than 160 billion riyals. Settling a part of this amount on the national level will have a positive impact on the liquidity.

Moreover, providing more facilities for expatriates will encourage them to invest internally as this move works to reduce the commercial cover that can be a burden for the national economy. This can also curb annual losses of at least SAR 200 billion.

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