MCQ Detailed View

The first Gulf countries to introduce VAT (Value Added Tax) were the United Arab Emirates (UAE) and Saudi Arabia. Both countries implemented VAT on January 1, 2018, marking a significant shift in the economic framework of the Gulf Cooperation Council (GCC) region.

Traditionally, most Gulf nations relied heavily on oil revenues and had no personal income tax or broad consumption tax systems. However, due to fluctuating oil prices and the need for diversified income, the GCC states agreed in 2016 to adopt VAT across member nations. The UAE and Saudi Arabia were the first to act on this plan, implementing a standard VAT rate of 5% on most goods and services.

Key facts about VAT in the Gulf:

• Introduced by: UAE and Saudi Arabia


• Implementation date: January 1, 2018


• Standard VAT rate: 5% (later increased to 15% in Saudi Arabia during 2020)


• Reason: Reduce dependence on oil revenue and generate sustainable government income


• Followed by: Bahrain (2019), Oman (2021), Qatar and Kuwait (planned)

Saudi Arabia later increased its VAT rate to 15% in July 2020 as a response to the economic impact of COVID-19. The UAE has kept its rate at 5%. The move to implement VAT is seen as a broader initiative by Gulf states to modernize their economies, promote transparency, and align with international fiscal standards.

This shift had wide-ranging implications, affecting pricing, accounting systems, business compliance, and consumer behavior. Though initially met with hesitation, the introduction of VAT has helped governments stabilize budgets and fund infrastructure, health, and education projects.