Because of the phenomenal effect on economy due to COVID-19 pandemic, the Ministry of Finance, Saudi Arabia has chosen to increment the standard pace of VAT from 5% to 15% with impact from 1 July ,2020.
Existing VAT Rate - 5% | New VAT Rate - 15% | Applicable from July 1,2020
Increase in cost of living post 1 July, 2020
Existing continuing contracts to be reviewed
Sales rush before 1 July, 2020
This measure is proposed to address the monetary unevenness because of loss of oil and duty income, decline in advertise spending and the expense brought about to battle the pandemic. With the constrained subtleties accessible now,
We can have an essential appraisal of the effect of this climb:
Impact on business
Impact on Consumers
Impact within GCC
Transitional Provisions
1. Impact on Business
The greater impact on businesses will be on the prices. It will be tough to keep competitive after increased rates. Many will have to subsume a part of the increased tax rate into their margin, which will be tough. At the same time, many expenses will be increased for the businesses and they will be forced to increase price to cover the same.
Businesses in financial services, real estate services, Government bodies, public educational institutions etc which are under exempt category will face an increase in their expenses as they are not allowed to claim input.
Main concerns that will require thorough consideration and intervention by taxpayers include: -
Cash flow management as more amount of tax will be paid even if not collected.
Accurate tax computation and filing.Increased rate implies increased penalty.
Changes to accounting system, POS and digital platforms.
Changes to invoices and other tax documents.
VAT clauses in existing contracts, agreements etc.
Goods returned after rate increase.
Advance payments received before increase date.
Purchase of assets and property.
Rebates and Discounts.
2.Impact on Consumers.
Clearly, the higher cost of living would have a significant effect on end customers. Prices will increase after the date of the increase in the rate of VAT. This means two things; customers will be on the buying line before the vat rate increase in order to save the tax and there will be a drop in purchases after the vat increase.
3.Impact within GCC.
The tax experts opine that UAE and Bahrain may not be going to follow the path of Saudi in increasing VAT rates. However, as per GCC VAT agreement, any increase in VAT rate should be agreed amongst member states and announced at least 6 months before implementation.Another matter of concern is the difference in rates for same products in different member states.It can affect the buying habits.
4.Transitional Provisions.
Taxpayers may review current contracts that allow for the continuous or periodic delivery of goods / services. It is advised to move with an intermediary service acceptance and billing protocol in order to avoid taxing the entire supply at a higher rate, especially in situations where customers are unable to fully recover input VAT. Businesses should analyse the transitional rules that are expected to be brought out and take necessary action.
How Palmate serve you to tackle the impact?
Palmate can help you to understand the exact impact rate change can bring about in your business and support you in the transitional provisions with the help of latest technologies and transformations to the business and more over professionally handle all your business related workflows support like ERP, Business Transformation, Automation and more...
Feel Free to contact us for FREE consultation. :
Palmate Technologies
L7, Al Murjanah Tower
Prince Sultan St, Ar Rawdah
PO Box 10113 Jeddah 21433,
Kingdom of Saudi Arabia
M : +966 53 542 0507
Disclaimer: "The data and information provided above are derived from various market sources, press releases and expert opinions and does not construe to be of consultancy advise."