IslamicFinance.de

Value added tax ("VAT") was pioneered by the European Union, but is gradually spreading worldwide. Saudi Arabia recently tripled its rate of VAT. While VAT in Saudi Arabia is only a couple of years old, the Saudi VAT law follows widespread international precedent by also exempting financial services. Accordingly, all financial institutions will suffer a hit to their profit and loss account. All purchases of goods and services which are subject to VAT increase in cost by 9.5%. This may lead to an increase in bad debts in the Saudi banking sector. Islamic financial services are not expected to suffer more (or less) than conventional financial services.