KSA Guide: What is Impact of VAT on Medical Sector in Saudi Arabia?

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More than 160 countries around the globe use value-added tax as a reliable source of income for the economy. Saudi Arabia has been looking forward to reduce its dependency on oil in recent times. In 2018, the Kingdom decided to implement VAT in Saudi Arabia to open up a new source of revenues. This move is indeed a great step in the country’s diversification of revenue sources away from its oil reserves. Naturally, the implementation of the tax had its impact on every sector of the economy, including the healthcare sector.

How did the government implement the VAT for medical sector in Saudi Arabia?

Understanding the tax mechanisms for the healthcare sector is often a little difficult as it involves a variety of industries. The same applies in case of VAT for medical sector in Saudi Arabia too. The production, administration and supply of a wide range of goods and services take place under the healthcare sector.

In most economies, healthcare services are exempt from VAT. In the other GCC states like the UAE and Bahrain, basic and preventive healthcare goods and services are zero-rated. This protects the healthcare sector from economic inflation and other similar factors during the initial stages of the implementation of the VAT.

In KSA, however, exemptions have been announced only for a selected range of medical goods and services. The VAT in Saudi Arabia would apply to all the basic healthcare services and related goods at the standard rate. Certain medical goods and pharmaceuticals would be fall under the zero-rated category. The same would be applicable to the supplies of these items too. However, the standard rate would still apply to health insurances.

What would be the effect of the VAT for medical sector in Saudi Arabia?

Like the impact of VAT in Saudi Arabia on other sectors, that on the healthcare sector would be positive. The tax would act as an additional source of income for the economy and reduce its reliance on the oil reserves. On the other hand, the VAT for medical sector in Saudi Arabia is reasonable and would not result in a major spike in healthcare costs.
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