Dubai – Saudi Arabia and the United Arab Emirates introduced value-addedtax from Monday, a first for the Gulf which has long prided itself on itstax-free, cradle-to-grave welfare system.
Saudi Arabia compounded the New Year blow for motorists with an unannouncedhike of up to 127 percent in petrol prices with immediate effect frommidnight.
They are the latest in series of measures introduced by Gulf oil producersover the past two years to boost revenues and cut spending as a persistentslump in world prices has led to ballooning budget deficits.
The five percent sales tax applies to most goods and services and analystsproject that the two governments could raise as much as $21 billion in2018, equivalent to 2.0 percent of GDP.
But it marks a major change for two super-rich countries where the mall isking. Dubai has long held an annual shopping festival to draw bargainhunters from around the world to its glitzy retail palaces.
Saudi Arabia has deposited billions of dollars in special accounts to helpneedy citizens face the resulting rise in retail prices.
The other four Gulf states — Bahrain, Kuwait, Oman and Qatar — are alsocommitted to introducing VAT but have decided to delay the move until earlyin 2019.
The hike in fuel duty in Saudi Arabia was the second in two years.
But it still leaves petrol prices as some of the lowest in the world.
High-grade petrol rose 127 percent from 24 cents a litre ($1.09 a gallon)to 54 ($2.46), while low-grade petrol rose 83 percent from 20 cents a litre(91 cents a gallon) to 36.5 ($1.66).
Duty on diesel and kerosene remained unchanged.
Saudi Arabia has introduced a raft of measures to raise revenue and cutspending as it bids to balance its books.
Last month, it slashed the government subsidy on electricity supply,leading to a sharp rise in bills.
Riyadh posted budget deficits totalling $260 billion over the past fourfiscal years and does not expect to balance its books before 2023.
To finance its mounting public debt, the kingdom has withdrawn around $250billion from its reserves over the past four years, reducing them to $490billion.
It has also borrowed around $100 billion from the international anddomestic markets.