Saudi Arabia has increased the value-added tax (VAT) by three times due to which experts believe that Hajj and Umrah will become more expensive for the year 2020.
The increase in VAT is part of new policies being adopted in the oil-rich kingdom after coronavirus which not only halted the economic activities during lockdown & curfew but also reduced the oil prices on which Saudi revenue is dependent.
According to the state news agency from July 1st, the applicable VAT will be increased from 5% to 15%. Economic expert such as Mohamed Ibrahim believes it will make the pilgrimage to holy cities of Makkah and Medina expensive because VAT is applicable to almost all goods and services including hotels, restaurants and other services.
The increase in VAT will be adjusted in the price of hotel bookings, transportation between holy cities and the food which will be served to pilgrims resulting in a more expensive pilgrimage package.
Whether Pakistani government adjusts these new rates through subsidy or decides to transfers it to the applicants by increasing the cost of the Hajj Package will be made clear in the coming months.
The revenue from pilgrimage is around 7% of Saudi Arabia’s total GDP and 20% of the non-oil GDP, which makes it a huge source of revenue for the government. It becomes more important when the prices and demand for oil is low and the government is trying to reduce the dependence on oil.
Along with the increase in VAT the government also announced the suspension of cost-of-living allowance to provide relief during the crisis.