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Saudi Arabia’s VAT to make haj, umrah more costly

Muslim pilgrims circumambulate around the Kaaba, the cubic building at the Grand Mosque, ahead of the annual Hajj pilgrimage in the Muslim holy city of Mecca, Saudi Arabia, Monday, Aug. 28, 2017. (Khalil Hamra / Associated Press)
By Farida Susanty and Anton Hermansyah Jakarta Post

Home to the world’s biggest Muslim population, Indonesia sees hundreds of thousands of people go on the haj as well as the umrah (minor haj) to Mecca every year.

The umrah can be done throughout the year. While not compulsory for Muslims, it is highly recommended, and people can do it more than once. Meanwhile, the haj, the fifth pillar of Islam, is mandatory for Muslims who are physically and financially able to do it.

However, with the new policy, a levy of 5 percent will be charged on most goods and services in Saudi Arabia, driving up the costs for Muslims going on the pilgrimage this year.

Religious Affairs Minister Lukman Hakim Saifuddin has confirmed that the levy will affect Indonesian pilgrims.

“That is why we can already predict that the cost of the umrah and haj will see an adjustment aligning it with the 5 percent tax,” he said on Wednesday.

Lukman said he expected the increase in the costs of pilgrimages to be around 5 percent, equal to the new VAT. He added his ministry was currently looking into the components of the haj costs for this year. The cost components for the haj will be proposed to the House of Representatives Commission VIII, which oversees religious and social affairs.

Association of Private Haj and Umrah Operators (Himpuh) chairman Baluki Ahmad said all the haj and umrah travel packages offered to the public this year would reflect the 5 percent tax.

“Everyone who will go on a pilgrimage this year will already be affected by the 5 percent tax; nobody is exempted,” he said.

He added the surge would not be applied to all of the cost components, but only to certain components, such as accommodation and transportation.

Lukman, meanwhile, said tour agencies had been aware of the tax policy ahead of Jan. 1, when it became effective. “But insya Allah God willing, it will not affect the pilgrimage costs too much.”

Saudi Arabia and the United Arab Emirates have introduced the VAT to buoy state revenue amid lower oil prices.

It is a first for the Gulf states, which have long prided themselves for tax-free living that attracted many foreign workers.

The 5 percent sales tax applies to most goods and services, including fuel, food, clothes and hotel rooms. Some items are exempt from the tax, including medical treatment, financial services and public transportation. Analysts project both governments could raise as much as US$21 billion in 2018, equivalent to 2 percent of their gross domestic product (GDP).