VAT in Saudi, UAE to adversely affect Indian expats: Former envoy

Introduction of Value Added Tax (VAT) by Saudi Arabia and the United Arab Emirates (UAE) would adversely affect a majority of Indians working there and reduce their remittances, says a former diplomat.

"I would say 70 to 80 per cent of Indian community there will be adversely affected," the former Indian Ambassador to Saudi Arabia, Oman and the UAE, Talmiz Ahmad, told PTI.

The size of the Indian community in Saudi Arabia and the UAE is 3 million and 2.8 million, respectively, he said.

Of them, the lower middle class and middle-class sections will get affected the most as they are already feeling the pressure on account of high cost of living, Ahmad said.

"This is on account of rent, medical expenses, school fees, transport and the high cost of essential items. Therefore, cost of living has gone up quite significantly in the last two years," he said.

The adverse impact on the labour community which is provided accommodation by the employer and blue-collar workers who are "protected" by their companies would be comparatively less, he said.

"As it is, the cost of living there (Saudi Arabia and the UAE) is quite high," he said. "Obviously, the low paid Indian expatriates will be adversely affected."

"I have a feeling, as it is because of the fall in oil prices and reduction in employment, the remittances have already reduced in the last two or three years," Ahmad said.

"The remittances from the Gulf have already come down; earlier it was about $35 billion; I think it would have come down to $30 billion. Yes, there will be a further small reduction (following the introduction of VAT) because this income will no longer be available to the person to remit," Ahmad said.

Saudi Arabia and the UAE introduced VAT from January 1, a first for the Gulf. Reports said the five per cent sales tax applies to most goods and services.