Saudi Arabia-UAE introduce VAT for the first time

The 5 percent levy is being applied to the majority of goods and services. Petrol and diesel, food, clothes, utility bills and hotel rooms all now have VAT applied. But some outgoings have been made exempt from the tax, or given a zero-tax rating, including medical treatment, financial services and public transport. Gulf states have long attracted foreign workers with the promise of tax-free living.

Falling oil prices is taken to be one of the reason for the introduction of VAT regime. Hitherto considered a tax free haven, VAT is being introduced from today in UAE at a rate of 5% with some limited exceptions including basic food items, healthcare and education.

The biggest concern around the introduction to tax is its impact on purchasing power and overall cost of living. Government and independent analysts have however tried to allay fears that VAT will result in a sharp increase in cost of living.

In Saudi Arabia more than 90% of budget revenues come from the oil industry while in the UAE it is roughly 80%. Both countries have already taken steps to boost government coffers.