22 May 2017
By Fatima Muhammad
JEDDAH — The General Authority for Zakat and Tax announced Sunday that the implementation of 5% VAT starting January 2018 will have no exceptions.
Misfir Dahim, the head of legal team for non-direct tax at the Authority, said all private sector establishments that had annual revenues of SR375,000 will be included in the VAT decision. Businesses with revenues of SR185,000 have the option to pay the tax.
He added that the system will overcome some wrong practices in the market and it will reflect positively on the economy. He added that this tax fee comes as an agreement between GCC states and it is considered the lowest in the world. He added that losing company is not exempted from paying the tax. He noted that the VAT is applied in 150 countries around the world.
Meanwhile, Ahmad Al-Taifi, head of the Authority at Jeddah office, said that there are major punishments on those evading the taxes. The violating establishment will be asked to pay an additional 50% of the value of the tax.
Vijay Soni, President, IMA Western Province Chapter, said GCC, particularly Saudi Arabia, has been treated as a tax-free zone by investors over decades. The adoption for the first time of any form of tax is a challenge for government as well as businesses and enterprises, as none of them have experienced its functionality, issues, and ways forward.
Most SMEs do not even understand the concept and their accounting processes are still based on non-VAT/sales tax methods. This means that they have to modify the process of recording business transactions, possibly adapt new technologies, conduct training for staff or hire new talent in addition to a new marketing approach to adjust pricing, he told Saudi Gazette during an interview.
Asked about sectors most affected by the VAT, he said packaged foods and soft drinks will face the most challenge initially. Automobile and machinery business enterprises are already feeling the pain of increased customs and removal of customs exemptions on various accounts.
Commenting on the potential contribution of the VAT in the GDP, he said at the outset, Saudi Arabian VAT collection is estimated to reach close to 2% of GDP within a short span of time. He added that in emerging and developing oil-exporting countries where the VAT has been implemented, the VAT contribution to GDP is around the average range of 5 percent (global average of about 7%).
He highlighted that the tax department needs to have a customer-friendly approach. They need to proactively reach out to the business community to reduce the fear of the new tax regime. He suggested that the department studies the experience of EU, Singapore and India to replicate best practices from these countries.
He highlighted that Vision 2030 is clearly showing the government’s willingness to work for the betterment of business community with transparent and performance-oriented working environment. “As management accountants, our role is to help translate those policies into business practices and adapt them to our enterprises to support and contribute to the country’s development goals.”
© The Saudi Gazette 2017