KSA Guide: What is Impact of VAT on Retail Sector?

As the KSA government imposed a massive hike in the VAT percentage (a 15% hike) in the nation, it impacts every industry. Although this has made Government achieve sustainable economic growth, it has a drastic impact on consumer behavior.

Besides, consumers are anticipated to shun purchasing, especially amidst the COVID-19 health crisis. Therefore, the increase of the VAT rate in KSA will have a negative impact on the retail industry (only for the first six months). The following is a detailed narration about the impact of VAT in Saudi Arabia and its retail industry.

Things to Learn About Multiple Commercial Registrations

According to the General Authority of Zakat and Tax (GAZT), a retailer with multiple stores or branches should have individual CRs or Commercial Registration numbers. It’s considered a significant part of a legal individual. The legal individual’s CR number gets used for the registration purpose of VAT.

The TIN or Tax Identification Number shall get applied to each store or branch. If the supplier is an entity with multiple branches in various countries, the supplier’s place of residence & obligations concerning the VAT calculation or collection gets determined on every supply.

VAT And Retail Prices

VAT should get displayed as one part of the individual product’s price. In case the total VAT or a taxable amount calculated for supplies equates to a fractional figure, the VAT on the Tax Invoice gets rounded to the nearest whole number. VAT must get calculated on the basis of the total payable agreed price.

VAT And Discounted Price

Value-Added Tax is payable to a reduced price (because of the offering of discounts by suppliers). Here’s where the concept of retroactive discounts comes into being. The supplier should issue the tax-compliant credit note for the discounting arrangements of bulk quantity discounts.

Single Supply vs. Multiple Supplies

Determining whether the supply constitutes the single or multiple supplies is important from the VAT perspective in KSA. A single supply gets identified as the one comprising several elements. One element clearly controls the rest.

In such cases, other elements get considered as part of the prime element concerning the supply. In multiples supplies, when every supply element is identifiable and visible, VAT implications get considered on the nature of individual elements.

Services or Goods Provided as the Part of the Supply

The concept of ‘deemed supply’ has been demonstrated. As a matter of fact, certain services, including free delivery of goods, is never to be seen as the ‘deemed supply’ because the same doesn’t reflect separate supplies of services.

Nonetheless, for other identifiable services which are separately and provided free of cost, deemed supply must get applied. The VAT rate must get reported as mentioned in relevant provisions of Implementing Regulations.

So, according to Vat for Retail sector in Saudi Arabia, luxury, expensive commodities, and top-notch brands will largely get impacted by the VAT hike. On the other hand, cheaper commodities, such as foodstuffs, will see a 10% impact on the total revenue. Higher VAT will have a negative impact as it owns the luxury brands. In fact, some merchants having strong profit margins may partly absorb VAT in KSA.
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