Saudi Arabia to introduce tax on harmful products from Q2 2017

Saudi Arabia has announced a timeline for implementation of a tax on harmful products including soft drinks and cigarettes, and said it has completely ruled out income tax contrary to previous reports, according to an official document.

The Fiscal Balance Program 2020 report, published by the Saudi government last week, said the kingdom would impose a 50 percent tax on soft drinks and a 100 percent tax on tobacco and energy drinks from the second quarter of 2017.

The taxes were proposed by the six-nation Gulf Cooperation Council (GCC) in December 2015, but Saudi Arabia’s Finance Ministry only signed the agreement this month, the report said.

No other Gulf country has yet announced a date for implementation of such taxes, although they have been mulling them since 2012. Studies in the GCC have found regional beverage prices to be the lowest when compared to the rest of the world and a key factor behind high rates of childhood obesity and diabetes. For example, osft drinks are priced at around AED1 (US0.27) in the UAE.

In November, the World Health Organization (WHO) suggested retail prices of sugar-sweetened drinks be increased by 20 percent through taxation, to bring about a proportional decline in consumption.

The Saudi government’s Program 2020 document revealed that the country was working on plans to include “sugary snacks and drinks” in the tax segment, to fight obesity and diabetes among its population, especially children, and that this tax would be introduced from the second quarter of 2017.

“The excise tax is a special tax that will be implemented on specific products with harmful health effects to disincentivise consumption of such products,” it said.

The document also said the kingdom would increase the “expat levy” payable by sponsors from the third quarter of 2017, with the fee rising every year to up to $213.30 (SR800) per worker by 2020.

At present, companies pay a levy of $53.33 (SR200) per month per expat in cases where expat employees exceed the number of Saudi employees.

A new fee on expat workers’ dependents will come into effect from July 2017, the document said.

With regards to value-added tax (VAT). the document said the country would implement the tax in the first quarter of 2018 in line with other GCC countries.

“A broad-based VAT is internationally recognised as an efficient revenue-raising measure. In addition, it stimulates the development of transparency and accounting infrastructure across the economy, which is an important part of the modernisation of the economy,” the document said.

In December 2015, GCC countries agreed to impose a five percent VAT. The Saudi Finance Ministry signed the agreement in December 2016.