Feeling the heat, Careem is the first to raise his fees in Saudi- Who’s next?
Careem is a hail a cab business. Businesses don’t pay VAT. Taxi passengers do.
So why is Careem raising his prices in January 2018?
Taxi companies do need to pay for new cars, new furniture, new wheels so they do pay VAT, when they become the consumer.
They also use gas. Octane 91 fuel went up 82% and 95 Octane is up 126% starting Monday January 1, 2018.
Careem will not be the last to raise prices. Here’s why.
Private sector woes
Of course the private sector in general will be negatively impacted the new levy on expat workers, not to mention VAT when companies buy more products, equipment, fly planes, and make hotel reservations, to mention a few.
Companies in the kingdom are burdened by the monthly fees imposed on expats for each of their dependents which begin at SAR100 a month per dependent in 2017 before increasing SAR100 each year.
Think twice before changing your mobile!
The introduction of VAT is expected to impact Saudi mobile phone market.
“The additional five per cent for VAT purposes will obviously have an impact on end-user prices,” Isaac Ngatia, a senior research analyst at the International Data Corporation (IDC), was quoted as saying to the media.
IDC also expects the introduction of VAT to have a negative impact on smartphone shipments to the UAE and Saudi Arabia during the first half of 2018, with these two markets set to experience a combined 10.1 per cent decline when compared with the same period of 2017, according to the report.
According to the Saudi Gazette, VAT will put a big burden on citizens when it comes to cost of education.
“If we assume the tax is imposed on owners of private schools and universities, it will increase their operation costs by 5 percent, reducing their profits or increasing their losses. If we expect a profit of 5-10 percent, the tax will take away all the profits or half of it,” it said.
“No businessmen will be interested to invest in the education sector if the return is less than 10 percent,” it added.
Gold down; prices up
Demand is likely to falter once the new tax is in place, according to the World Gold Council (WGC).
In Q3, gold jewelry demand in Saudi Arabia was weak, falling 9% to 9.8 tonnes, largely dragged down by higher prices, the WGC said in its latest ‘Gold Demand Trends’ report.
“We are still awaiting clarity on the method of calculations for VAT in the jewelry industry.” Shamlal Ahamed, managing director at international operations of Malabar Gold & Diamonds, told the Khaleej Times.
Reservations about tourism
Hotels are among the items that will be subject to VAT.
But the good news is that the General Authority of Zakat and Tax (GAZT) announced on Dec. 24 that they are working on a mechanism to return the value-added tax (VAT) to tourists, but it will not be applied in the early months of 2018 as the process are yet to be established.
But religious pilgrimage will subject to an increase in price. “From next year onwards, Saudi Riyal 2,000 would be imposed on the pilgrims performing Umrah more than once within the same year, according to Noori Travels, an agency specialized in religious travel.