RIYADH/JEDDAH, 25 October 2004 — Saudis and expatriates have welcomed the GCC finance ministers’ move to levy VAT and said it should begin with harmful products like tobacco and some luxury goods. Essential commodities should be spared.
Saudi businessman Saleh Al-Musallam said VAT should be nominal and not high. Though it is not clear which products are candidates for the value-added tax, past GCC statements suggest that tobacco and other harmful products as well as some luxury items could be targeted under the move.
Al-Musallam said the VAT should be nominal in order to avoid inflationary pressure. “Smoking should be made costly, since it is affecting the health of our youth,” he added.
According to Dr. Mansour Al-Nuzha, president of the Saudi Heart Association, a study conducted between 1996 and 2000 disclosed that 19.1 percent of males in the 30-70 age group were smokers, while females comprised 8.3 percent in the same age group. The overall rate for smokers as a whole in that group worked out to 13.4 percent.
The GCC states will start levying VAT from next year. Tobacco and other “harmful” products will be targeted for the tax first, a report said. The VAT rates are considered a compromise and would replace a previous proposal for a sales tax that would require a comprehensive tax system, it is pointed out.
“It’s a good move,” said Khan H. Zahid, chief economist and vice president at Riyad Bank.
“With the formation of GCC Customs Union and the streamlining of tax structure, they will have to make up through measures like VAT,” he said. It, however, depends on how it is implemented.