UMRAH | July 15th, 2020

Value Added Tax to increase by 10% in Saudi Arabia | More expensive Umrah and Hajj

Ibadat | Umrah Desk: The VAT rate in Saudi Arabia will be increased to 15% (from the current rate of 5%) effective 1 July 2020. This means that the Hajj and Umrah packages for the upcoming season 2020 – 2021 will become even more expensive (in SAR )!

The tripling of the VAT rate is intended to address the fiscal imbalance caused by a decrease in consumer and commercial spending, the loss of oil and tax revenues, and the cost of healthcare initiatives put into place in response to the pandemic (COVID 19).

According to KPMG – businesses in the financial and real estate sectors—those in which significant proportions of the goods and services are exempt from VAT—may face a significant increase in costs because they are not able to claim input VAT incurred that relates to exempt activities. This increase will affect profitability and, eventually, could have a cascading effect on customers.

History of Dramatically Increasing prices of Religious Travel Packages

Hajj and Umrah package prices have consistently been increasing over the last few years. For Pakistani’s the main reason is the dramatically depreciating exchange rate.

However the rise of cost for Umrah (2019 – 2020) season has been due to the increase of Umrah Visa costs and changes in booking process. The increase was around SAR 700.

Expectations for Upcoming Umrah Season 2020 – 2021

The price of Umrah packages for the upcoming season are also expected to rise dramatically. As it is PKR has depreciated by around 5% in the last few months. Adding the increasing VAT on hotel accommodation and transport will also factor in higher prices.

But significant increase is expected to come from the implementation of Quota during Umrah Season 2020 – 2021 in order to manage the effects of Corona Virus! It is also expected that the Mandatory Health Insurance cost will also increase for Umrah Passengers. All this would have an severely adverse in demand for religious packages hence dealing a blow to an already struggling sector in Pakistan! 

Originally published July 15th, 2020 9:21 am, updated July 15, 2020

Topic: Umrah

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