Ahmed Bin Hamdan
Okaz/Saudi Gazette
MADINAH — Saudi Arabia’s retail sector will lose 5 percent of their sales in the first year after the imposition of value-added tax (VAT) by the end of this year, said economists and accountants.
The new tax aims at rationalizing consumption of Saudis.
“This type of tax will also help the Kingdom control its growing inflation rate,” said a financial expert.
He added that with the imposition of the VAT, the government, which obtains correct information about the production cost of commodities, would be able to effectively monitor prices of end products in the market.
He hoped that private companies would restructure and take steps to reduce cost of production in response to VAT. This will also result in many people losing their jobs. At the same time, there would be big demand for highly qualified accountants and financial experts.
The GCC countries have decided to impose a 5 percent VAT gradually on a number of products, including unhealthy consumer products, in the next two years. The move also aims at preventing people from using harmful products, reducing import of luxury goods and hiking state revenues.
Dr. Hassan Hekami, an accountancy researcher at RMIT University in Australia, described VAT as one of the common taxes imposed on consumer goods worldwide. He said at least 145 countries apply the tax to reduce consumption and encourage people to save money.
He said the retail sector in the Kingdom would lose 5 percent sales as a result of the new tax. Consequently it would reduce the gross domestic product. “It would be costlier for the private sector as they have to totally restructure their billing and accounting systems,” he added.
Hekami highlighted the positive impact of VAT in controlling increasing inflation rates in the country. “This tax will provide minute information to governments about prices of commodities and costs of production, giving them greater leverage to control prices and inflation.”
He added: “It will also help eradicate disorganized trade being carried out by illegal agencies as companies would be dealing with official agencies only.”
This will contribute to increased job opportunities for Saudis at commercial agencies and push illegal operators out of the market. He urged universities to plan ahead to meet the new job market requirements.
Economic analyst Fadel Bin Saad Al-Bouainain said the value-added tax would be imposed not only on end products but also on their raw materials. “This means it will impact not only consumers and producers but the market in general,” he explained.
“We can say that VAT would affect consumption of commodities and reduce sales of companies as well as their profits,” he told Okaz/Saudi Gazette.
Employees in private companies would be one of the victims of this tax, Al-Bouainain said. “Decrease in sales and increase in production costs would reduce profits.”
As a result of these developments, companies would be forced to cut expenditures, which will lead to job losses. He advised GCC countries not to impose VAT on raw materials to reduce its impact on manufacturers and consumers.
“I believe the new strategy of companies would focus on reducing expenditures rather than absorbing new costs,” Al-Bouainain said.
