New era in Gulf as VAT takes effect

Gulf region no more a tax haven and badly hit will be Indians, particularly thousands from Telangana

By Author  |  Gulf Correspondent  |  Published: 3rd Jan 2018  1:02 am
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Riyadh: Hard hit by the dwindling income from oil, energy-rich key Gulf States of Saudi Arabia and United Arab Emirates (UAE) have introduced value-added tax (VAT). The introduction of VAT regime by the two key players marks the beginning of a new era in the history of the Gulf region’s economy, which was long kno­wn as a tax haven.

Other GCC st­at­es of Bahrain, Kuwait, Oman and Qatar are expected to follow suit. Some have hai­l­ed the introduction of VAT as the start of an “exciting, dram­atic” ch­ange in the region, where the state spending on welfare and infrastructure is high.

However, the me­a­sure is also exp­e­cted to push up prices for all residents, including citizens and low-income workers, where a sizeable number of Indians, including lakhs from Telangana, live.

Family budgets to be hit

One of the primary reasons for Indians and also other nationalities to bring their families to Gulf was its status of a tax haven. However, with the introduction of the 5 per cent value-added tax (VAT) in Saudi Arabia and UAE, families are bound to strategise their monthly expenses and budgets.

The 5 per cent is much lower compared with India’s GST and other taxes.

With introduction of VAT on various goods and services, NRIs now will become budget conscious and selective in their shopping, unlike before.

Also, the hike in petrol prices and electricity tariff in Saudi Arabia are also causing unease to Indian families.

The new tax measures will further hit expatriate families already reeling under family dependent fee.

Besides Indian workers, VAT also impacting Indian business firms which have a presence in the UAE. Many Indian companies have their presence in UAE to reap the benefits of tax and business-friendly regulations available in the free zones. There are approximately 45 free zones in UAE which give free trade incentives and benefits to businesses registered in such zones.

Huge negative impact

Currently, the free zones are autonomously operated and with the implementation of VAT, the benefits of free zones will be heavily impacted.

The UAE VAT law has provided for the meaning of ‘designated zones’ and not ‘free zones’. Article 51 of the Executive Regulations provides an exemption from levy of VAT only in case of movement of goods between the designated zones.

In case of movement of goods into and from a designated zone to a non-designated zone, VAT would be applicable, thus causing a reduction in profits.