Saudi Arabia’s VAT Increase Leads to Rise in Inflation in 2020: General Authority for Statistics

Inflation in Saudi Arabia increased to 3.4% year-on-year (YoY) in 2020, according to the latest data from the General Authority for Statistics. Government data indicated that the prices of food and beverages (up 9.0% YoY), along with transport (up 3.8% YoY) were the main drivers of inflation in 2020.

According to media reports, this increase was led by the tripling of VAT in July 2020, amidst lower oil prices and the COVID-19 pandemic. The VAT increase to 15% caused a spike in inflation in the second half of 2020. This followed a deflationary trend in 2019 (-2.1% YoY) and a mild inflation rate in the first half of 2020.

Saudi Arabia’s economy witnessed a sharp contraction in 2020 (estimated by the ICAEW at around -4.0% YoY), with the lifting of COVID-19 restric...