JEDDAH: The introduction of value-added tax (VAT) next year will directly impact the prices of commodities and services, analysts said.
“The price increase will reduce the demand for goods, and this will have a negative effect on companies, most of which will likely take several measures to keep their business,” Khalid Al-Zaidi, a financial analyst, told Arab News.
He hoped the price rise would not affect the quality of goods and services. “If it happened, it is a negative indication. However, the price hike will push consumers to find ways to save money,” he said. Businesses must register for VAT by the deadline of Dec. 20, and the official introduction starts on Jan 1.
Al-Zaidi also said there would be a sharp drop in demand for luxury goods and accessories.
He anticipated that companies will be keen to improve their services at competitive prices, especially with the opening of international markets through e-commerce. He stressed that the best service-providers with the lowest costs will succeed in the market, while other businesses will fail.
Al-Zaidi, who is also the director of the Jeddah-based Al-Zaidi Financial Education Center, said that it is possible that the government will impose additional taxes on other products or increase VAT from 5 percent.
“If the results are found to be supportive to the country’s economy and helps citizens to rationalize their consumption habits, additional taxes will be implemented,” he said.
On the up side, Al-Zaidi said that once VAT is imposed on petroleum products, the country will be able to cut domestic consumption of oil products.
“This will help Saudi Arabia increase the quantity of its oil reserves and enable it to increase its export of oil to the international market,” he said.
He added that this could support its global position as an important player in the oil market. “It will also strengthen its oil pricing policy inside OPEC (the Organization of the Petroleum Exporting Countries),” he said.
Al-Zaidi anticipated that small and medium-sized companies will find it difficult to adapt to VAT, making it difficult to significantly reduce their expenses to survive.
As for imposing VAT on private education, Al-Zaidi said that investors in this sector would reduce fees to retain their market share. “Otherwise, their investment would be severely affected,” he said.
Khaldoun Khan, the owner of Al-Corniche International School and Al-Faisal International School, told Arab News that students’ guardians would be affected by the decision, and he would not increase registration fees. He said that his schools would lose some students. “Students have started to join state schools due to the decision,” he said.
Khan said that he would have another look at the profits and consider providing students with attractive offers to keep his business alive. “Unless the government reviews the decision, many school owners will choose to close their schools,” he said.
The General Authority of Zakat and Tax (GAZT) has urged businesses with annual revenues of more than SR1 million ($266,640)  to expedite their VAT registration process and ensure their readiness for its implementation.
More than 60,000 businesses have registered for VAT since registration started on Aug. 28, 2017.
Businesses that fail to register in time will face fines of up to SR10,000 and the suspension of several critical government services, including issuing work permits, changing business activity, issuing visas, transferring workers’ sponsorship and other services provided by the Ministry of Commerce and Industry, the Ministry of Labor and Social Development, the Ministry of Municipal and Rural Affairs, Saudi Customs and the Saudi Arabian Monetary Agency.
The GAZT confirmed that VAT will be implemented on Jan. 1 next year, and that all eligible businesses must be ready and aware of its laws, regulations and requirements — available on the VAT website vat.gov.sa.
The GAZT first imposed a selective tax on energy drinks, cigarettes and soda drinks. It also increased the visit visa fee, exit re-entry fee and dependent fee for expatriates.