Question

Please discuss about the topic below:

Topic: “In 2020 Saudi Arabia - the standard rate of VAT increased from 5% to 15%. Discuss the welfare effects of the VAT reform and its implications for business and taxpayers”.

Kindly use new unique words with no matching ratio.

Thank you.

Answer 1

In 2020, Saudi Arabia increased the standard rate of VAT from 5% to 15%. This increase is due to the uncertain economic fallout from the impact of the COVID-19 pandemic.

The govt. took such measuree to maintain or solve the fiscal imbalance caused by the drastic decrease in consumer and commercial spending, the major loss of oil and tax revenues and the cost of the many healthcare initiatives ttok place to fight the pandemic.

Businesses that supply directly to the final consumer will be concerned about remaining competitive and may have to absorb part or all the VAT increase so that the retail prices of goods and services are affected as little as possible. Unfortunately, there may be little choice but to increase prices to cover the additional costs expected to be incurred.

issues that will require detailed consideration and action from taxpayers include:

• Supplies that span the effective date of the increase (e.g. rental agreements, insurance contracts, cleaning contracts and subscription services);
• Time of supply (continuous supplies vs one-off supplies);
• Advanced payments received before the rate increase;
• Goods returned after the rate increase;
• Adjustments to VAT clauses in existing contracts;
• Pricing – absorbing the VAT increase to support market competitiveness;
• Annual price lists adjustments;
• Rebate and discounts;
• Purchase of immovable property;
• Changes to accounting systems, point of sale and digital platforms to include the new tax rate;
• Changes to tax invoices, debit and credit notes;
• Change of use of capital assets; and
• Splitting the input VAT apportionment calculation for businesses that make both taxable and exempt supplies

Businesses in the financial and real estate sectors where significant proportions of their goods and services are exempt from VAT face a significant increase in costs as they are not able to claim input VAT incurred that relates to exempt activities. This increase will impact profitability and, eventually, will have a cascading effect on customers.