The 2020 KSA customs duties and VAT increase: Navigate the impact

The substantial changes in the fiscal environment of the Kingdom of Saudi Arabia (KSA) over the years have presented businesses with ongoing challenges; furthermore, the implications of the COVID-19 outbreak on the economy has led to a stark increase in customs duties and VAT.

Does your business have procedures in place to navigate this challenge? In this article, our experts explore the latest changes, share strategies to mitigate negative impacts and outline an approach to take to develop a bespoke mitigation strategy.

What has changed?

The Government of KSA was already committed to Vision 2030. This requires a drive to diversify the economy, reduce reliance on oil and gas revenues, and develop and protect new and emerging sectors, industries, and jobs within the Kingdom. 

The impact of this priority has now been compounded by the significant economic shock resulting from the COVID-19 pandemic, leading to widespread changes in the fiscal environment, including:

• Customs duties were raised on more than 2,000 lines in KSA’s customs tariff from June 10th
• The rate of VAT was trebled to 15%, effective 1st July 2020
• Fees for dependents and financial and regulatory burdens on expats have been increased
• The Saudi Ports Authority (Mawani) has announced substantial increases in port fees to be introduced from January 2021

These changes are designed to protect and develop domestic industry, while protecting public revenues in an economy suffering from the significant reduction in activity in 2020. These changes indicate a clear ‘direction of travel’ for fiscal policy in KSA, and further changes in the same direction seem likely in the near future.

Clearly these new regulations have a significant impact on all businesses, however, the number and complexity of the changes can make it difficult to truly understand the effects. Only with a clear understanding of all of the implications can organisations develop targeted mitigation strategies and ensure that the impact on profitability and growth are minimized.

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