Saudi Arabia and the United Arab Emirates, which have long lured foreign workers with the promise of a tax-free lifestyle, plan to impose a 5 per cent tax next year on most goods and services to boost revenue after oil prices collapsed three years ago.
The value-added tax, or VAT, will apply to a range of items like food, clothes, electronics and gasoline, as well as phone, water and electricity bills, and hotel reservations.
There will be some exemptions for big-ticket costs like rent, real estate sales, certain medications, airline tickets and school tuition. Higher education, however, will be taxed in the UAE. Extra costs parents pay to schools for uniforms, books, school bus fees and lunch will also be taxed, as will real estate brokerage costs for renters and buyers.
Other Gulf countries are expected to implement their own VAT scheme in the coming years. Even with a five per cent jump in prices, the tax rate is still significantly less than the average VAT rate of 20 per cent in some European countries.