Cal­cu­lat­ing the new VAT

Arab News - - News Saudi Arabia - DIMAH TALAL AL-SHARIF

Ac­ti­va­tion of the new VAT — with value-added tax on goods and ser­vices to in­crease from 5 per­cent to 15 per­cent from to­day, July 1 — is the most im­por­tant news this week. The tax will be ap­plied to all ser­vices and goods that are eco­nomic in na­ture, ex­cept for ac­tiv­i­ties that have been ex­empted — mainly in­ter­na­tional trans­porta­tion ser­vices, spare parts and con­sum­ables, main­te­nance and re­pair ser­vices for trans­porta­tion, health care ser­vices, medicines and med­i­cal equip­ment is­sued by the Min­istry of Health and the Food and Drug Gen­eral Author­ity. In ad­di­tion, we have the ser­vices pro­vided by gov­ern­ment agen­cies of dif­fer­ent kinds, which do not have the char­ac­ter­is­tics of eco­nomic ac­tiv­ity, such as re­new­ing pass­ports, driv­ing li­censes and others, and, of course, la­bor op­er­at­ing ex­penses such as salaries and em­ployee ben­e­fits.

Many peo­ple won­der about this new tax position on bank­ing and fi­nanc­ing ser­vices, where it is im­por­tant to note that these ser­vices fall within the ex­cluded ac­tiv­i­ties, which in­clude fi­nan­cial prod­ucts that are based on profit mar­gins, run­ning cur­rent bank ac­counts, de­posit and sav­ings, in­ter­est and lend­ing fees in­clud­ing credit cards, is­suance and trans­fer of debts, as well as pay­ments made by a per­son who is not sub­ject to this tax, such as sell­ing cars be­tween in­di­vid­u­als.

For more clar­i­fi­ca­tion, air­line tick­ets and ho­tel reser­va­tions are at zero tax, based on the agree­ment stip­u­lat­ing “zero in­ter­na­tional trans­port,” where the King­dom does not have sovereignt­y over this ser­vice or where other coun­tries will col­lect the tax as a re­sult of con­sum­ing the ser­vice.

The value-added tax ap­plies to elec­tric­ity and water bills is­sued af­ter July 1, as well as im­ported goods based on the date of im­por­ta­tion, so if the im­por­ta­tion took place be­fore the end of June 30, 2020, the ba­sic rate of 5 per­cent ap­plies, but if im­por­ta­tion takes place af­ter this date, the mod­i­fied base rate of 15 per­cent ap­plies.

At this stage, the pub­lic shall read more about the vi­o­la­tions and fines re­lated to the ap­pli­ca­tion of this tax, such as sub­mit­ting in­cor­rect doc­u­ments with the in­ten­tion of evad­ing taxes or to pay less than the ac­tual tax value, where the penalty shall be a fine not less than the value of the tax due, and no more than three times the value of the goods or ser­vices.

Vi­o­la­tions in­clude fail­ure to regis­ter the tax dur­ing the spec­i­fied pe­riod, where the penalty will be SR10,000 ($2,660) per sin­gle reg­is­tra­tion.

If the new added value is cal­cu­lated be­fore July 1, which is an ex­plicit vi­o­la­tion, the con­sumer is right to re­port it im­me­di­ately to the Gen­eral Author­ity of Zakat and Tax through its of­fi­cial chan­nels, whether the web­site or ap­pli­ca­tion.

Dimah Talal Al­sharif is a Saudi le­gal con­sul­tant, head of the health law de­part­ment at the law firm of Ma­jed Garoub and a mem­ber of the In­ter­na­tional As­so­ci­a­tion of Lawyers. Twit­ter: @dimah_al­sharif

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