DUBAI (Reuters) – The Saudi Arabian government has introduced a new tax on electronic cigarettes and sugary beverages, building on similar measures that were first implemented in 2017. This move is part of a broader strategy to address the budget deficit exacerbated by declining oil prices.
The General Authority of Zakat and Tax has announced that a 100% tax will be imposed on electronic cigarettes and their components, while a 50% tax will apply to sugary drinks.
As the largest economy in the Arab world, Saudi Arabia previously enforced a 100% tax on cigarettes and tobacco products, as well as a 100% tax on energy drinks and a 50% tax on carbonated beverages.
This decision was made on May 15 and took effect following its publication in the official gazette.
These taxes are categorized as selective taxes on products regarded as harmful to public health.
As the leading global exporter of oil, Saudi Arabia initiated a 5% value-added tax (VAT) in January 2018 to bolster non-oil revenue streams after a significant drop in oil prices beginning in mid-2014 adversely affected state finances.
Recently, the International Monetary Fund (IMF) reported that the introduction of VAT has been effective; however, it also suggested that the Saudi government should contemplate increasing the rate, which is relatively low compared to global standards.
Key Takeaways
- Saudi Arabia has imposed a 100% tax on electronic cigarettes and a 50% tax on sugary drinks.
- This tax initiative is part of efforts to address a budget deficit linked to declining oil prices.
- Existing taxes include a 100% tax on cigarettes, tobacco, and energy drinks, along with a 50% tax on fizzy drinks.
- The new tax regime took effect on May 15, after being published in the official gazette.
- These measures are categorized as selective taxes on products deemed harmful to public health.
- Saudi Arabia first introduced a 5% VAT in 2018 to diversify its revenue sources.
- The IMF recommends considering an increase in the VAT rate due to its low level by global standards.
FAQ
What products are affected by the new tax in Saudi Arabia?
The new tax applies to electronic cigarettes and sugary drinks, with rates set at 100% and 50% respectively.
When did this tax become effective?
This tax became effective on May 15, coinciding with its announcement in the official gazette.
What is the purpose of these taxes?
The primary aim is to generate revenue and curb the consumption of products that are harmful to public health.
How does this new tax relate to existing taxes in Saudi Arabia?
It builds on existing taxes on cigarettes, energy drinks, and fizzy drinks that were implemented previously.
What has been the international response to Saudi Arabia’s VAT implementation?
The IMF has noted the success of the VAT but suggests considering an increase in the rate to align with global standards.
(Reporting by Lisa Barrington; Editing by Mark Potter)
