VAT: Make the right choice!
2022/03/29
The Value Added Tax (VAT) is relatively considered as a new indirect tax, dating to the beginning of the twentieth century. It first emerged as an effective way to solve problems specifically arising from the application of total sales taxes, and as an alternative (and by far a better version) to corporate income tax (CIT).
In simple words, VAT can be defined as the charge levied on consumption (supplies of services or goods). Therefore, the charge is to be paid by the final consumer (individuals or entities). In fact, VAT is imposed sequentially in portions, during all the stages of the supply chain, from planning to delivery. The companies or concerned parties calculate it during production phase, each according to its own tax policy and to each country’s rules. The benefits, reimbursed along the production chain, are afterwards collected, and submitted to the concerned government.
VAT plays a significant role around the globe and stands as a pioneer in maintaining economic balance. This article intends to share more information about this tax; its strengths and weaknesses, as it is considered a source of revenue for the governments and as it occupies a considerable area in the heart of Saudi Vision 2030. Therefore, you will find that the team of Andersen in Saudi Arabia is always ready to answer all your enquiries about this topic.
A source of revenue with greatest attraction
Perhaps the most important thing in defining VAT is connected to the role this tax is playing within the context of globalization. Since its adoption, initially under different nominations, the focus was and still on its virtues, mainly its administrative feasibility, the collection of revenues it allows and nourishes, and its low negative economic effects.
Although VAT’s increase is linked to the impact on individuals and families purchasing power, this tax represents a great incentive specifically in the sense of enhancing companies’ competitiveness, and therefore, it reflects, from a comprehensive perspective, each country’s economic trends and priorities. VAT dynamics differ from one country to another, according to each nation’s fiscal policy, yet keep in mind that talking about VAT includes VAT input (added on purchases) and output (added on sales). Using VAT reflects a country’s aspiration, among other objectives, to secure revenues from taxes and use them in economic intervention and in the redistribution of wealth.
As for the first point, revenues, VAT is an example of how to put taxation in practice in order to accomplish this first objective. It allows funding public policies by providing resources for a high-end product. In this perspective, the value-added tax has the most attractive characteristics, as its imposition is not expensive because, as mentioned earlier, companies guarantee their collection from consumers. In addition, this tax constitutes a source of high and stable resources over time.
The second point that must be addressed, lies at the heart of the possible objectives of fiscal policies; economic intervention. Here the question is raised about the best economic behavior or the approach that the state intends to adopt in directing the economic agents. This is normal as taxes have always been known to leave a great impact on consumers’ decisions and choices, among other categories. While higher taxes are linked to discouraging consumption on one hand, lower ones on the other, fulfill the role of a targeted tax that encourages beneficial classified behaviors. The last point concerns redistribution, aiming to raise the level of equality.
A plan at the heart of Vision 2030
Saudi Arabia’s Vision 2030 includes a significant focus on the Kingdom’s potential revenues flowing from tourism and cultural contexts, among others, and partnership frameworks that stimulate investments and greater private sector participation. In February 2017, the Kingdom ratified the unified VAT agreement. Zakat, Tax and Customs Authority is responsible for managing and implementing value added tax in cooperation with relevant authorities. The process is easy. The added value can be calculated before establishments submit declarations through a website dedicated for this purpose (zatca.gov.sa).
Andersen in Saudi Arabia: your added value
Amid the vivid debate over the effectiveness of VAT, Andersen in Saudi Arabia’s seasoned experts offer you a range of VAT-related services. These services can be summarized as follows and can be applied in several stages.
In the first stage, our experts will make sure that you and your business team really understand VAT related details in KSA as it is a very important source of income.
In the second stage, it’s time for testing and selection! The team of Andersen in Saudi Arabia will endeavor to calculate the value-added for customers, to make sure that they are fully up to date with the electronic billing requirements published by ZATCA. Our experienced consultants will also ensure the assessment of clients’ compliance with the Zakat, Tax and Customs Authority regulation, then calculate VAT planning and assess the client’s tax exposure.
In the next stage, relax and let our experts take things in charge for you and prepare, review, and fill out VAT returns. And as the picture becomes clear, our network of specialists will provide you with advice and consultation on VAT requirements, all in order to dispel any objections or appeals related the Zakat, Tax and Customs Authority’s assessment.
In conclusion, the value-added tax differs from one country to another and from one financial system to another, and regardless of the diversity of points of view, all agree that the value-added tax remains an ideal source of income and a precious element of attraction for foreign investments, especially when looking at competitive advantages compared to other countries of the world. Contact our team to benefit from payment/transactions advice, and trust that it all starts by making a good choice!
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Raghad AlmosinedConsultant – TAX & ZAKAT