Saudi VAT increase: What are the long-term implications?

Saudi VAT increase: What are the long-term implications?

In a sudden decision, Saudi Arabia announced that from July 1, it would be hiking its value added tax (VAT) from 5 per cent to 15 per cent.

The move, aimed at supporting the government as revenues plummeted due to the drop in oil prices, expectedly led to inflation in the market.

From a legal perspective, these are the implications of the decision:

Impact for taxpayers

Taxpayers that carry out VAT exempt supplies and unregistered entities (such as passive holding companies) are not allowed to recover (all of) the input tax incurred on their expenses. As a result of the rate increase, VAT exempt taxpayers will incur more irrecoverable VAT, which increases the cost of doing business.

This may lead to an increase in consumer prices, causing (additional) inflation as the VAT exempt taxpayer