The impacts of the VAT implementation are discussed in the study and the research study is revolving around top measure the impacts of the VAT implantation in Saudi Arabia. In the first section of the research study the background of the VAT has explained in extensive way along with objectives and research question and this part provides the significance of the study. The literature review discuss the views of the previous authors on the implementation of the VAT in Saud Arabia.The primary data has been used to conducting this research study which based upon the self-designed questionnaire. The data is collected from the 80 respondents for analyzing the implementation of the VAT in Saudi Arabia. To perform the correlation and regression analysis the SPSS has been used in this study. All of the test shows that by implementing the VAT the performance of the companies of the Saudi Arabia will be enhance as well.

Literature Review of the VAT (Value Added Tax)

        The VAT has three principal types that are categorized according to their treatment of capital equipment’s destructibility, i.e. gross product (Value Added Tax), consumption (Value Added Tax), and income (Value Added Tax) (Schenk and Oldman, 2007). A gross product VAT, according to this typology, contains the largest base of tax. Only a limited deductions choice is permitted by this, such as raw materials cost. Therefore, when it comes to capital investments purchase, it causes tax expenses. Somehow, additional deductions are permitted by an income value added tax (VAT). Furthermore, depreciation is the expense that we deduct on capital goods as a purchase of net investment (depreciation subtracted by gross investment). So, finally, the total capital investment deduction is allowed by a consumption VAT, with business purchases being excluded or deducted.

        Despite an immense value-added tax structures range and besides methods of implementation, that were investigated later, the consensus is facing some problems and critical issues. At the first value-added tax is considered as a tax that relates to the consumer spending on services and several kinds of goods, somehow, consumption is the final base of tax. A consumption valued added tax (VAT) is the reason because of which feeis credited on the purchases of capital goods. Somehow, it does not change prices for products that are based on the transactions of purchase or sales between manufacturers, and subsequently, have characteristics related to production efficiency maintenance that is beneficial. Also, as it is levied at given each level of production, whereas ensuring guarantee that tax will only affect consumption, it is essential to do not break the VAT chain while allocating tax on inputs. (Ebrill et al., 2002).

        VAT liability can be calculated through the use of three methods: credit-invoice method, addition method and subtraction method (Schenk and Oldman, 2007). Nevertheless, it is universally (Excluding Japan) considered that the most efficient manner of calculating VAT liability is the credit-invoice method (Owens, 2005). The main of this discussion is not to comment on the performance of these different calculation methods although later in the chapter such aspects are discussed briefly. Though, the principal reason here regarding this issue is that liability calculation method known as the credit-invoice method is attributed as most efficient on the basis that it links with the tax credit on input account of buyers to the remitted tax. Here tax is paid by the input providers (who sell out the input to the manufactures), false undervaluation regarding average sales is discouraged. Somehow, it can also be said that the VAT tax can be avoided by the credit-invoice method as it is designed to provide accuracy and original interpretations (Owens, 2005). As a result of this compliance get enhance. Thus, a research study conducted on this method by Grinberg in 2009 claims that the invoice requires the key factors and aspects that generate the difference between the subtraction-method and credit-invoice method.

        The study conducted was made by Rao (2004) to examine that what kind of loss or gain is held by the states in terms of having uniform design features, value added tax, tax base extension to transactions other than 1^st point sale, inputs tax credit, and for international exports & interstate trade, holding zero rating. She also said that the tax system’s cascading problem would not be resolved just by services exclusion from the base. The base of significant sales tax was on the output of the manufacturing sector, so VAT’s estimated impact was just there to get an idea about the manufacturing industry, which is registered (Rao, 2004).

        The author made the further argument that VAT’s structure & rates homogeneity was remarkable in terms of reducing the tax competition scope among st states, as well as for economic activity, the tax system neutrality was also important. But rates homogeneity cannot make sure that all nations will maintain the current revenue level. With the variation in tax GSDP ratio, the indication was made that interests of different countries were different from each other, so in the later part, VAT’s structure & rates may be changed by the rules. The author concluded on assumptions that few countries expected not to gain anything from VAT, but few countries consistently looked to learn much from it (Rao, 2004).

        It was pointed out by Bezborah and Singh (2005) that structure of sales tax various weaknesses such as loss of revenue, pyramiding effects, cascading nature, rates multiplicity, as well as tax rates lacking in uniformity. It was also pointed out by them that what are the necessary elements of the excellent structure of sales tax, like VAT was one of the best alternatives as compared to sales tax. But there are some black spots hold by VAT as well. Moreover, the VAT implementation also comes with many problems in India. Further points discussed by them included refund mechanism, threshold limit, taxes unification, CST removal, rates uniformity etc., and it was also concluded that VAT implementation should not see more delay in India.

        The interest of authors Malone and Acevedo is revolving around the potential long term and short term impact, which can be made by VAT rate changes, and inflation rate’s effect on the revenue of VAT. This discussion is based on the fact that what monetary policy, as well as VAT tax rate direction, should be set in Mexico. This model is based on induced as well as direct economic effects made by changes in tax rates without making any restrictions on how economic outcomes and policy variables are going to be interrelated. In these countries, the role of VAT rate, revenue of VAT, inflation as well as government’s indigent is more crucial because there is significant integration between economic and political structures. The case of Mexico is unique to discuss because it has allowed that how the connection between some of these variables can be analysed with regards to increasing fiscal as well as economic reforms (Maloney and Azevedo, 1995).

        Oldman and Woods (1983) have observed that taxable transactions failure of reporting should be discouraged by the VAT system as per theory. For instance, if a consumer and a vendor, both get together for conspiring the lower price with the help of VAT, and sale is not reported, then reduced rates will not be applied by the vendor until the consumer is agreed to communicate his/her actual transaction. If a colluding consumer’s client decides that his/her actual purchase will be notified with the colluding consumer so that VAT credit can be obtained, so the colluding consumer should provide an invoice. This is how it works, and then VAT amount must be paid by the colluding vendor as per requirements (Oldman and Woods, 1983).A point of view is supported by most researchers, which states that investment and savings are promoted by VAT because rather income consumption, the consumption of taxes is made (Charlet and Owens, 2010).

        In addition to that as per accumulated data of researchers of OECD, it was indicated that VAT had shown more values of pro-growth as compared to corporate or income tax being applied (Johansson, Heady, Arnold, Brys and Vartia, 2008). But VAT has also shown neutral characteristics in terms of individual taxpayers that whether they spend or save money when they interact with consumer products. However, it is essential to understand that consumption tax is only for current consumptions, and it is not levied on saving in a certain period, so as compared to other taxation forms, it is considered more efficient economically (GAO, 2008).

        Reckon (2009) has utilised the numbers of EU economies structural indicators so that VAT gaps determinants can be obtained through tests of econometric type. There was a strong relationship between the found variable and VAT gap size, and it is connected with the corruption’s perceived level in the country, where lower VAT gap has its association with lower rate of fraud. However, it was surprising to know claims were made by the report that there was no critical relationship was found between the VAT burden and VAT gap, when measurements errors are considered in the contingent liability’s estimation with the use of instrumental variables of regression. As compared to that other studies and their results have come up with quite contrasting results consistently. It can be presumed that these difference in different countries may be accounted for by the macroeconomic conditions, which are different from each other.

        According to Martin Harrison, (2010), the taxation issues is by no means of a new one and it is struggling for introducing the indirect or direct taxation in the previous dates as in the 1980s. At that time various tax policies are implemented in Kuwait and Saudi Arabia, in 1955 the corporate tax was introduced in Kuwait, and until 1975 the Saudi Arabia implanted the income tax for foreigners. Saudi Arabia suspended this tax in 1975 due to the oil revenue’s scale. They had required hiring the large numbers of the foreigner for developing the infrastructure of their economy. The income tax had reintroduced by the government of Saudi Arabia in 1988 on foreign workers for balancing the decreasing in oil revenues. The charge had been potentially allowed for the replacement of the foreigners who did not want to stay in Saudi Arabia. In Saudi Arabia, the opposition for the income tax was most striking from the leaders of the local business and expatriate and these all issues are also about to the local socio-political culture. It is noted by the report of 1985 which is conducted on Bahraini economy the person, and corporate tax is charging by the government. All the people of the area are regarded as dangerously socialist for this idea by not Arabian(Harrison, 2010).

         Kaya (2016) stated, for measuring the distortion wealth distribution the various level of the taxation is commonly used while the Transparency International Corruption Index can measure the level of the corruption. For the four measurements, the world average has been achieved by various countries particular for most of the indicator the high ranking is making by the Qatar and UAE. For the protection of property rights Saudi Arabia, Oman and Kuwait, were mostly on the world average. This model is based on induced as well as direct economic effects made by changes in tax rates without making any restrictions on how economic outcomes and policy variables are going to be interrelated. For the institutional quality related to the economy, the countries have achieved good performance. The Gulf countries are involved in facing the increase in the presses for the spending of the government of the Finance which is also considered as the crucial domestic stability for all of these states.  Through the direct prediction of the property as well as excessive tax the private property can be grabbed by the entire government. By following the distortionary taxation policies, inefficient or Disruptive wealth distribution can be the tough obstacle for the long term growth which is discouraged by the private investment,and it becomes the cause of outflows of the capital(Kaya, 2016).

        In the early 21^st century to introducing the VAT has become the big challenge for the local market of the Saudi Arabia. To prepare for these changes all of the organization are required less than the four months. It provides the warning to those organization which have not started they must be implements it immediately to measure the impacts of the tax on their entire operation of the organization. It also includes the commercial and pricing strategy which have impact on their financial and IT reporting system. The extensive system of the VAT implementation has been experienced by the KSA, UAE and several other countries which are active presence in the region(Niblock, 2004).

        Now a days the Arabia countries are seeking to develop the modern tax system collectively and individually. These all of the countries are dependent on the oil and generating the diversified and broad revenue which is based upon the stable revenue stream. The system of the VAT is recommended by the authorities to calculating the tax in Saudi Arabia. It is highly recommended that the GCC must be agree on the destination which is based upon the VAT by using the common rate 3-5 percent. The credit invoice method must be used for the calculation the tax. In the UAE the common legal framework has been developed along with the lines which are not established earlier(Ahmad, 2010).

        For discussing the implementation of VAT in Saudi Arabia it discusses the structure of the Saudi economy is necessary because it describes the need of the implementation of the VAT in SaudiArabia. The economic situation of the Saudi Arabia is considered as the quite unique because the sustainability is eroded by it percapita GDP since 1981. The comparable per capita GDP has been founded in the Saudi Arabia which is figured out as $15600 and this GDP has risen about the $38000. This following healthy economy has been recorded in the 2000 because of the oil prices and high oil production(Chemingui, 2004).

        The main of this discussion is not to comment on the performance of these different calculation methods although later in the chapter such aspects are discussed briefly. At the first value-added tax is considered as a tax that relates to the consumer spending on services and several kinds of goods, somehow, consumption is the final base of tax. The VAT tax can be avoided by the credit-invoice method as it is designed to provide accuracy and original interpretations. It was also pointed out by them that what are the necessary elements of the excellent structure of sales tax, like VAT was one of the best alternatives as compared to sales tax.VAT’s structure & rates homogeneity was remarkable in terms of reducing the tax competition scope amongst states, as well as for economic activity, the tax system neutrality was also important (Thacker, 2008).

References of the VAT (Value Added Tax)

Ahmad, E. &. (2010). Fiscal reforms in the middle east: VAT in the Gulf Cooperation Council. . Edward Elgar Publishing.

Chemingui, M. A. (2004). Tax policy reform in Saudi Arabia: A general equilibrium analysis. In proceeding of the Economic Research Forum’s. 11th annual conference.

Harrison, M. (2010). Taxation and the GCC States. gulf1bank.

Kaya, A. &.-T. (2016). Inclusive Economic Institutions in the Gulf Cooperation Council States: Current Status and Theoretical Implications. Review of Middle East Economics and Finance, , 12(2).

Niblock, T. (2004). Saudi Arabia: Power, legitimacy and survival. . Routledge.

Thacker, S. (2008). Taxation in the Gulf: Introduction of a Value Added Tax. . Mich. St. U. Coll. LJ Int'l L., 17, 721.