Saudi Arabia and the United Arab Emirates, which have long lured foreign workers with the promise of a tax-free lifestyle, plan to impose a 5 per cent tax next year on most goods and services to boost revenue after oil prices collapsed three years ago.
The value-added tax, or VAT, will apply to a range of items like food, clothes, electronics and gasoline, as well as phone, water and electricity bills, and hotel reservations.
There will be some exemptions for big-ticket costs like rent, real estate sales, certain medications, airline tickets and school tuition.
Higher education, however, will be taxed in the UAE. Extra costs parents pay to schools for uniforms, books, school bus fees and lunch will also be taxed, as will real estate brokerage costs for renters and buyers.
Other Gulf countries are expected to implement their own VAT scheme in the coming years.
Shops, gyms and other retailers are trying to make the most of the remaining tax-free days in Saudi Arabia and the UAE, encouraging buyers to stock up before the VAT is rolled out on 1 January 2018.
Even with a 5 per cent jump in prices, the tax rate is still significantly less than the average VAT rate of 20 per cent in some European countries.
The National newspaper, based in Abu Dhabi, says the cost of living in the UAE is expected to rise about 2.5 per cent next year because of the VAT. Salaries, meanwhile, remain the same.
As the government adjusts to lower oil prices, the UAE is expected to raise around 12 billion dirhams [$3.3bn] from the tax.
Meanwhile, Saudi Arabia recently unveiled the biggest budget in its history, with plans to spend 978 billion riyals [$261bn] this coming fiscal year as the government forecasts a boost in revenue from the introduction of VAT and plans to reduce subsidies. Still, Saudi Arabia is facing a budget deficit until at least 2023.
The International Monetary Fund recommended oil-exporting countries in the Gulf introduce taxes as one way to raise non-oil revenue. The IMF also recommends Gulf countries introduce or expand taxes on business profits.
Source: News Agencies, Edited by website team