The General Authority of Zakat and Tax

:: The 5 percent value-added tax (plan) will not be imposed on certain medicines and medical equipment, according to Reuters citing a statement carried by Saudi Press Agency (SPA) on Saturday.

All other private health care services will be taxed at the standard rate, the statement said, citing directives issued by the General Authority of Zakat and Tax (GAZT), the Ministry of Health and the General Authority for Food and Drug Affairs.

Last week, the tax authority had confirmed that interest or lending fees charged with an implicit margin for finance will be exempt from value-added tax (VAT).

GAZT officials, at a workshop held in Jeddah for members of the local media, also quashed rumors about ATM withdrawals and clarified that customers would not be charged for withdrawing or transferring money from their accounts using ATMs.

However, the 5-percent tax will be imposed on banks’ administrative charges such as the issuance of checkbooks, statements of accounts and safety deposit boxes and the customer will have to bear this expense.

In a bid to facilitate businesses, the authority also announced that the first year after VAT launch will be a transitional period. Goods and services supplied under certain long-term contracts will be zero-rated during that period provided the existing contracts meet certain requirements. This will enable suppliers and customers, who had entered into long-term contractual commitments, to re-negotiate the contracts’ details, particularly details that will be affected by VAT implementation.

GAZT clarified that this treatment only applied to contracts that did not anticipate VAT. Contracts that contain tax-related provisions or mechanisms to adjust prices of goods and services and include VAT will not be included.

Saudi Arabia and the UAE are expected to be the first Arabian Gulf countries to introduce the GCC-wide VAT on Jan. 1, 2018, while other member states have committed to implementing their own VAT taxation by next year.

Gulf states have been looking at other ways to reduce dependency on oil revenues, as well as create new income streams to fund government services including public health services, public owned or funded schools, parks and transport infrastructure.

It is estimated that the VAT’s imposition will raise between $7 billion and $21 billion annually — or between 0.5 percent and 1.5 percent of regional GDP. The International Monetary Fund (IMF) has said the returns could reach around 2 percent of region’s output.

The GAZT has urged businesses with annual revenues of more than SR1 million ($266,640) to expedite their VAT registration process and ensure their readiness for its implementation.