VAT will hurt low-income families


Al-Watan Newspaper

People have lately been talking a lot about the introduction of a Value Added Tax (VAT) into the Kingdom and the lifting of the subsidy on fuel. Some economic experts believe that this will increase the price of commodities and services and that citizens will end up bearing the costs.

Undoubtedly, VAT generates good income for the government and helps the government provide sustainable public services. It will also reduce our dependency on oil as our primary source of revenue. The government is going to impose taxes in order to rationalize the consumption of water and electricity and power in general. It also seeks to increase public awareness and encourage investment.

One of the potential risks of VAT lies in the fact that some businesses will increase the prices of products beyond the VAT percentage and also increase the prices of those goods that are exempt from VAT. In this case, inflation is bound to occur and low-income families will suffer.

Fuel subsidies primarily help support the poor and small businesses. However, when the government introduced the subsidy, the only beneficiaries were the wealthy and big companies. Investment in cement, iron and concrete has increased. All of these materials need a lot of energy to produce them. The government introduced the Citizen Account Program and deregulated fuel prices as a way to support low-income families.

Lifting subsidies involves a lot of potential risks and the same holds true for the imposition of VAT. For example, if government fuel subsidies work in the interest of higher-income families, decreasing the percentage of subsidies will reflect negatively on low-income families. This is because low-income families spend most of their money on buying basic and essential items. Therefore, any increase in the prices of services and products, as a result of VAT, will have a negative impact on the purchasing power of low-income families.

To minimize the potential risks of VAT, the authorities should monitor the market and ensure that all businesses abide by the VAT percentage.