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

For many countries, the tourism sector plays an important revenue source. While the sector has not flourished well in every nation, the countries with a well-established tourism sector enjoys high returns from it. Saudi Arabia is primarily known to be an oil-based economy. However, the tourism sector here has good potential too. The VAT for tourism sector in Saudi Arabia would infuse the economy of this country with a significant amount of revenue.

How would the VAT for tourism sector in Saudi Arabia work?

Most of the goods and services that are supplied in the tourism sector are taxable. The suppliers would be able to recover the value-added taxes on the purchases. Generally, the taxation on the tourism sector is a little complicated as various revenue streams are involved. In case of hotels, all the services such as food and beverages, rooms, telephones, internet, conferences, weddings, etc. are subject to VAT in Saudi Arabia, among others. Thus, hotel accommodation would attract VAT at standard rates.

Outbound tourism is yet another complicated aspect. Standard rates would apply to domestic flights while the international flights would be zero-rated. However, international journeys often include domestic legs and zero-rating may be applicable in such cases.

As for goods purchased by the tourists, the VAT in Saudi Arabia does provide for a refund. However, the tourists must purchase the items only from approved retailers in order to avail the refund. The refund would not be available to residents of any of the GCC states.

Is the introduction of VAT in KSA good or bad?

VAT and GST are widely adopted by various countries to ensure a steady source of revenues. At a time when the KSA is trying hard to deviate from having oil as the only major revenue source, the VAT implementation is indeed a good decision. The VAT for tourism sector in Saudi Arabia would contribute significantly to the economy of the country.