New VAT Rate Comes into Effect in Saudi Arabia
Saudi markets witnessed unprecedented activity, a few hours before the implementation of a decision to raise the value-added tax to 15 percent, which takes effect on the first of July.
Shops and retail stores were heavily packed with shoppers, who grabbed the opportunity to purchase a variety of goods before the prices increase.
Economists said that the commercial sector was able to curb the losses that were incurred as a result of the compulsory closure imposed by the authorities to prevent the spread of the coronavirus.
The Ministry of Finance announced in May a decision to raise the VAT from 5 to 15 percent to support the state’s finances in facing the repercussions of the pandemic on the Kingdom’s budget.
Member of the Saudi Economic Association, Dr. Abdullah Al-Maghlouth, said furniture stores, car showrooms, electronics shops and others benefited from this period to compensate for the stagnation over the past months.
“Increasing the VAT will enhance the concept of saving and enable the citizens to review their accounts and control their spending,” he told Asharq Al-Awsat.
“This will contribute to changing the concept of unjustified extravagance, and therefore the purchasing power in the coming days will not be the same as before, after the citizens change their consumption habits,” he added.
Economic Analyst Dr. Salem Baajajah attributed the overcrowding of shops and markets in the last week before the tax to the consumers’ desire to acquire high-value goods, such as cars, furniture and electronic devices, before their prices increase with the new VAT rate.
“Those who were able to purchase their needs before the VAT increase, could save 25 to 30 percent of the value of the commodities,” he underlined.