KPMG Al Fozan & Partners held an awareness media roundtable on the value-added tax the Saudi government intends to introduce next year; the tax system is part of the government’s efforts for economic reform and restructuring.
The roundtable, themed “Value-Added Tax: Impact on Local Market and World’s Best Practices” saw wide participation by the media.
Rupert Pease, KPMG’s Head of Tax, made a brief introduction. Refat Obeidat, KPMG’s VAT Director in Riyadh, continued with an overview of this type of tax and how VAT can be applied onto the Saudi market. The roundtable also shed light on the objectives the government intends to achieve by implementing the VAT system, potential impact on market, and examples of countries where VAT was implemented successfully.
“The roundtable comes on the eve of the government’s implementation of 5% tax as part of wider agreement on sweeping economic reforms among GCC states. We aimed to spread awareness about VAT and aware on the benefits it brings to the Saudi economy,” said Obeidat.
VAT is defined as an indirect tax levied in return for the consumption of goods and services, designed to be collected by the suppliers of these consumables. In other words, the one that should be paying the tax will collect it from another actual payee – the consumer or end user.
The income expected to be generated from the tax, Obeidat confirms, will be enormous. “By our estimates, VAT will secure significant funds during the first full year of deployment, and that’s if the tax is not imposed on petroleum and gas products. If oil and gas are also taxed, the return could be doubled,” he said.
“This is all part of the economic reforms that the government of Custodian of the Two Holy Mosques King Salman Bin Abdulaziz is pressing with to take the nation to a bright future with confidence, achieve the objectives of the National Transformation Plan, and bring Vision 2030 to reality.”
Obeidat said that VAT, unlike other types of taxation, can help limit or eliminate tax evasion, thanks to the fact that it is self-contained and flexible, growing or shrinking with the state of the economy.
VAT will be introduced across the entire GCC: taxable imports and services provided by eligible individuals will be collected in their respective countries within the GCC. An eligible individual is one who accrues taxable goods and services from another who is not a resident of the GCC, and therefore not eligible for taxation in that GCC member state. Eligible individuals will be subject to retroactive taxation.
Each member state, Obeidat stressed, has the right to levy or lift taxes on its national health care, education, finance, transportation, and real estate sectors. An eligible individual residing in any given member state will be required to register as such, should the value of his or her supplies be expected to exceed the minimum required limit for registration, which is 375,000 SR or equivalent in one full business year.
“As the introduction date draws nearer,” says Obeidat, “it would be vital for corporations to be well prepared with new procedures and software, so as to avoid any mistakes that may cost them dearly.”