Calculating the new VAT in Saudi Arabia
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Activation of the new VAT — with value-added tax on goods and services to increase from 5 percent to 15 percent from today, July 1 — is the most important news this week.
The tax will be applied to all services and goods that are economic in nature, except for activities that have been exempted — mainly international transportation services, spare parts and consumables, maintenance and repair services for transportation, health care services, medicines and medical equipment issued by the Ministry of Health and the Food and Drug General Authority.
In addition, we have the services provided by government agencies of different kinds, which do not have the characteristics of economic activity, such as renewing passports, driving licenses and others, and, of course, labor operating expenses such as salaries and employee benefits.
Many people wonder about this new tax position on banking and financing services, where it is important to note that these services fall within the excluded activities, which include financial products that are based on profit margins, running current bank accounts, deposit and savings, interest and lending fees including credit cards, issuance and transfer of debts, as well as payments made by a person who is not subject to this tax, such as selling cars between individuals.
For more clarification, airline tickets and hotel reservations are at zero tax, based on the agreement stipulating “zero international transport,” where the Kingdom does not have sovereignty over this service or where other countries will collect the tax as a result of consuming the service.
The value-added tax applies to electricity and water bills issued after July 1, as well as imported goods based on the date of importation, so if the importation took place before the end of June 30, 2020, the basic rate of 5 percent applies, but if importation takes place after this date, the modified base rate of 15 percent applies.
At this stage, the public shall read more about the violations and fines related to the application of this tax, such as submitting incorrect documents with the intention of evading taxes or to pay less than the actual tax value, where the penalty shall be a fine not less than the value of the tax due, and no more than three times the value of the goods or services.
Violations include failure to register the tax during the specified period, where the penalty will be SR10,000 ($2,660) per single registration.
If the new added value is calculated before July 1, which is an explicit violation, the consumer is right to report it immediately to the General Authority of Zakat and Tax through its official channels, whether the website or application.
• Dimah Talal Alsharif is a Saudi lawyer and legal consultant. Twitter: @dimah_alsharif
