Tax expert explains why Saudi VAT hike could boost investment

Sanjeev Fernandez. (Supplied)
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Updated 12 May 2020

Tax expert explains why Saudi VAT hike could boost investment

  • Ernst & Young tax expert Sanjeev Fernandez tells Arab News how the increase in VAT in Saudi Arabia will bring the Kingdom in line with other countries and help to spur investment

RIYADH: How will the increase affect the Saudi economy?

In its discussions with the GCC member states around the introduction of VAT, the IMF has been clear that rates of VAT higher than the 5 percent standard rate initially enacted, are necessary to preserve fiscal spending. The latest announcement brings Saudi Arabia’s standard rate of VAT more in line with other global regimes, although still significantly lower than some European regimes where VAT rates are generally in the 20s. As Saudi Arabia works toward its goals as part of Vision 2030, especially in relation to infrastructure spending, the increase in the rate of VAT could potentially help drive continued government investment, particularly in the context of low oil prices. Ultimately, sustainable government spending in an economy creates jobs, which in turn stimulates economic activity and growth.

How will these measure be felt in the short, medium and long term?

While these are exceptional times, the initial introduction of VAT in Saudi Arabia at the beginning of 2018 was met with minimal disruption to businesses and impact on consumers. Therefore, provided consumer spending remains consistent, and tax revenues are quickly reinvested in the economy, the increase in the VAT rate could be a positive move in the medium to long term. Ensuring a balanced approach to the government’s fiscal position will support business confidence, and in the medium to longer term, could increase investment and economic growth in the Saudi economy.

Is the 15 percent VAT rate here to stay?

Since the introduction of VAT, it has been understood by many in the profession that the GCC member states would ultimately look to raise their VAT rates, to align with other global VAT and GST regimes, and to increase government revenues to support continued fiscal spending. For Saudi Arabia at least, the 15 percent rate could potentially be here to stay depending on the circumstances, and is consistent with calls by the IMF for higher VAT rates across the GCC.

How will companies react?

Businesses impacted by the increased VAT rate, will face a challenging decision as to whether to pass on the additional VAT to their customers, or absorb this cost to some degree. Many businesses may have no choice but to pass on the additional cost to customers, bound by long term agreements and fixed pricing, capping legislation, or a need to preserve profit margins.


Julius Baer ordered to pay $162m over vanished East German cash

In this file photo taken on February 05, 2010 a man walks past the logo of the Swiss bank Julius Baer group at the headquarters in Zurich. (AFP)
Updated 5 min 51 sec ago

Julius Baer ordered to pay $162m over vanished East German cash

  • The Zurich-based bank has been fighting a long running legal battle against the payment, but Switzerland’s highest court has now given its final decision, ordering Julius Baer to pay 150 million francs

ZURICH: Swiss private bank Julius Baer could seek to recoup 150 million Swiss francs ($162 million) from UBS after it was ordered on Friday to repay the German government over millions in East German cash that vanished after the fall of the Berlin Wall.
The German government has been seeking money that it says was illegally transferred out of East Germany when the communist regime collapsed.
At that time, large sums were moved from an East German foreign trade company to foreign banks, so the money could not be seized by a reunified Germany.
For more than 20 years the Federal Agency for Special Tasks (BvS) has been searching for the money which has since been withdrawn from the banks.
The agency has also been seeking to make banks involved liable for not preventing these withdrawals.
Julius Baer became involved due its acquisition of the former Swiss Bank Cantrade, which it picked up in 2005 when it bought Bank Ehinger & Armand von Ernst Ltd. from rival Swiss lender UBS.
The matter is related to unauthorized withdrawals between 1990 and 1992 from a Cantrade account of a foreign trade company established in East Germany, Julius Baer said on Friday.

BACKGROUND

German authorities have been trying to recover funds that were allegedly transferred out of East Germany illegally when the communist regime collapsed in 1990.

The Zurich-based bank has been fighting a long running legal battle against the payment, but Switzerland’s highest court has now given its final decision, ordering Julius Baer to pay 150 million francs.
BvS was not immediately available for comment on the decision.
The payment, which includes interest, is fully covered by a provision Julius Baer booked in December 2019, the Swiss bank said.
Julius Baer said it will notify UBS of the final ruling. It previously said it would pursue Switzerland’s biggest bank for payment under the warranties agreed when it acquired Bank Ehinger & Armand von Ernst from it. UBS did not immediately respond to a request for comment.