Saudi cabinet gives final approval for VAT

Saudi Arabia’s cabinet approved on Monday the Gulf region's unified agreement on value added tax (VAT), the Saudi Press Agency (SPA) reported.

A five percent tax will apply in 2018 to select goods following the agreement introduced last June. This includes tobacco products, as well as energy drinks, while a 50 percent tax will be applied to soft drinks.

Saudi Arabia had already agreed to levy a tax on tobacco products, soft drinks, and other harmful products in second quarter this year.

The International Monetary Fund has recommended that Gulf states impose cost-cutting and revenue-raising measures, including value added taxes, to help their economies adjust to the low oil price era.

Residents in Saudi Arabia and neighboring GCC countries had long enjoyed a tax-free and heavily subsidized system.

The world’s biggest oil exporter, which has cut spending by freezing major infrastructure projects and slashing government pay and bonuses over the past year, plans to increase state spending in 2017 to boost its flagging economic growth.