DUBAI: Hard hit by a drop in oil income, energy-rich Gulf states will next year introduce value-added tax to a region long known for being tax-free.
Some have hailed introducing VAT as the start of “exciting, dramatic” change in the region, but the measure is also expected to push prices up for all residents including citizens and low-income workers.
On Sunday, the UAE doubles the price of tobacco and increases soft drink prices by 50 percent, ahead of the more general VAT on goods and services from January 1.
The UAE is one of the six Gulf Cooperation Council states to have agreed to introduce VAT at five percent next year as they seek to revitalize their economies.
The UAE and Saudi Arabia have said they will implement VAT from January 1, 2018, while the other GCC states of Bahrain, Kuwait, Oman and Qatar are expected to follow suit during the year.
Economies in the Gulf — home to the world’s biggest exporters of oil and liquefied natural gas — took a major hit after a global supply glut triggered a drop in prices in 2014.
Their balance sheets have remained in the red despite government austerity measures recommended by the International Monetary Fund, including freezing wages, benefits and state-funded projects, cutting subsidies and raising power and fuel prices.
Governments across the region have also drawn hundreds of billions of dollars from their massive sovereign wealth resources in an attempt to curb the deficit.
The six states are now taking austerity measures a step further with the plan to introduce VAT, ending their decades-old reputation for being tax havens.
Accounting and consultancy firm Deloitte has said the progressive implementation of VAT from next year “marks the start of some of the most exciting, dramatic and far-reaching socio-economic changes in the region since the discovery of oil” more than half a century ago.
But the move is expected to increase prices across the board including for nationals, who make up roughly half of the GCC’s overall population of 50 million.
Gulf nationals have for decades benefited from a generous cradle-to-grave welfare system, and have largely been spared by austerity measures so far.
VAT, a consumption tax imposed on goods and services, is generally paid by individual consumers to businesses, which then transfer the funds to tax authorities.
“Citizens won’t be happy about the price hikes from the VAT. I don’t think it will be acceptable as it will affect people’s budgets,” said Khaled Mohammed, a Saudi working in Dubai’s property sector.
The IMF has insisted the introduction of VAT will not drive away millions of expatriates until now lured by a tax-free environment.
But the future looks daunting for the region’s tens of thousands of low-income workers.
“It’s going to be tough for all those who draw small salaries,” said Rezwan Sheikh, an Indian restaurant worker in Dubai.
“We’re already struggling with finances. How much are we going to save after the VAT?” asked Sheikh, who sends most of his salary home to his parents and pregnant wife.
Saudi Arabia and the UAE alone make up 75 percent of the GCC’s $1.4-trillion economy and are home to 80 percent of the Gulf population, citizens and expatriates.
Under the agreement between GCC states, some goods and services will be exempt from the tax.
Bryan Plamondon of the US-based IHS Markit Economics says food, education, and health care, as well as renewable energy, water, transportation, and technology, are likely to receive preferential treatment.
He estimates that VAT will raise between $7 billion and $21 billion annually — or between 0.5 percent and 1.5 percent of GDP.
The IMF has said the returns could reach around two percent of GDP.
But inflation rates will also increase.
Faisal Durrani, who heads research at Cluttons Dubai, expects inflation to double to four percent in the UAE next year.
Capital Economics has projected Saudi inflation could reach 4.5 percent, a stark shift from the current 0.4 percent deflation.
Finally, says leading Kuwaiti economist Jassem Al-Saadun, governments will need more than numbers to ensure a successful introduction of VAT.
“People must be convinced that there is social justice, that raised funds will be used for development projects and that corruption is checked,” the head of Al-Shall Consulting told AFP.
“None of these factors is guaranteed.”
Gulf states say goodbye to tax-free reputation
Gulf states say goodbye to tax-free reputation
Using space science to protect Saudi Arabia’s environment
- Kingdom is harnessing satellite technology to forecast disasters, boost agriculture
RIYADH: Learning space science has delivered significant environmental benefits worldwide, helping many countries better understand and manage climate challenges.
Saudi Arabia is now taking steps not only to explore the galaxy but also to invest in future generations who can apply space science to pressing environmental issues at home.
Last November, the Space Academy, part of the Saudi Space Agency, launched a series of seminars designed to enhance knowledge and develop skills in space science and technology, with a particular focus on Earth observation.
Running for nearly a month, the program formed part of a broader strategy to nurture national talent, raise scientific awareness, and build data capabilities that support innovation and research across the Kingdom.
As efforts to strengthen the sector continue, important questions remain: How can space science translate into tangible environmental benefits? And how large is the global space economy?
In an interview with Arab News, Fahad Alhussain, co-founder of SeedFord, highlighted the scale of the opportunity and its environmental impact.
“To be frank, the slogan that we always use in space is that ‘saving the Earth from the space.’ It is all about this,” Alhusain told Arab News.
“You can recall a lot of related environmental issues like global warming, related to forests, related to the damage that happens to the environment. Without space, it would be almost impossible to see the magnitude of these damages.”
According to Alhussain, satellites have transformed how experts observe environmental changes on Earth, offering a comprehensive view that was previously impossible.
He said that “the transformation of technology allows even the non-optical ways of measuring, assessing, and discovering what is going on in the environment … you can even anticipate fire before it happens in the forest.”
“You can detect the ice-melt down, you can get huge amount of information and can see it through the weather maps…there is a huge section in the economy for the environment,” Alhussain commented.
A 2022 report by Ryan Brukardt, a senior partner at McKinsey & Company, published by McKinsey Quarterly, found that more than 160 satellites currently monitor Earth to assess the impacts of global warming and detect activities such as illegal logging.
Brukardt cited NASA as an example of how advanced satellite tools are used to track environmental changes, including shifts in ocean conditions, cloud cover, and precipitation patterns. He also noted that satellite data can help governments determine when immediate action is needed, particularly in response to wildfires.
FASTFACT
Did You Know?
- Satellites collect massive amounts of data, and AI is used to help interpret this information more efficiently and predict future outcomes.
- The global space economy surpassed $600 billion in 2024 and is projected to exceed $1 trillion by 2030.
- Saudi Arabia has established three key entities: the Supreme Space Council, the Saudi Space Agency, and the Communications, Space, and Technology Commission.
Beyond disaster response, satellites offer vital insights for agriculture. According to Brukardt’s report, scientists can use space-based data to monitor crop development and anticipate threats to harvests, such as drought or insect infestations.
These wide-ranging applications explain the rapid growth of the global space economy.
According to World Economic Forum research, the sector is projected to reach $1.8 trillion by 2035, nearly tripling from $630 billion in 2023.
For Saudi Arabia, expanding space science capabilities could help address the country’s arid conditions by monitoring desertification and identifying sources of air pollution. Early detection of droughts, heatwaves, and crop stress could support more effective environmental planning and response.
Space-based data could also play a critical role in tracking environmental changes in the Red Sea and surrounding coastal ecosystems, strengthening marine conservation efforts and supporting the Sustainable Development Agenda.
As Alhussain emphasized, advancing knowledge in space science and satellite technology enables experts to measure environmental damage accurately and predict disasters before they occur, allowing for more effective responses.
By investing in space science education and research, the Kingdom can build national expertise, strengthen environmental protection policies, enhance food and water security, and contribute to global efforts to combat climate change—while also benefiting from the rapidly expanding space economy.
Ultimately, a deeper understanding of space and its applications offers Saudi Arabia, and the world, better tools to anticipate climate challenges, protect ecosystems, and safeguard biodiversity.
“By collecting data and using satellites, you can better analyze and measure so many things that help the environment,” said Alhussain.
“There will be patterns where you can warn people, scientists and decision makers to do something about it.”
