In January 2017, the KSA government increased the customs import duty rates applicable to a wide range of highly consumed products. The measure saw the end of certain subsidies, which had been introduced in 2008 and renewed periodically. The result was an increase in customs duty rates.
Construction and electrical materials went up from the previous 5% rate to between 12 and 15%, depending on the Saudi Integrated Customs Tariff classification of each product.
The higher import duty is intended to increase government revenue and to help local industries compete with multinational companies
Impact on construction materials
Building materials affected include paints, gypsum, plastic pipes, door accessories, pre-fabricated modular buildings-/sections, electrical cables and accessories, and apparatus for the control or distribution of electricity.
Implications for construction contracts
Fixed-price contract prices without adequate provisions for price adjustment in the event of changes in the law are likely to be affected.
Construction-related companies with business in KSA need to review whether the duty rates have changed for their materials, and assess the impact on their operations. Goods should be classified correctly and the appropriate duty applied. Companies may consider reviewing and restructuring their supply chains to take advantage of free trade agreements and other duty-reduction programmes.
Construction cost estimates
The preparation of construction project costs estimates and tender bid submissions should take into account the increased material prices due to the revised KSA Customs import tariffs.
Faithful+Gould’s cost management team can offer further detailed cost advice on the impact of KSA import tariffs on construction projects.