The Impact of the Reverse Charge Mechanism in VAT Accounting on Public Revenues in Saudi Arabia

Abstract

This study analyzes the impact of the Reverse Charge Mechanism (RCM) under the Value Added Tax (VAT) system on tax revenues, public revenues, collection efficiency, and the budget deficit in Saudi Arabia during 2018–2024, addressing the scarcity of empirical evidence on its effectiveness and implications for tax compliance and accounting accuracy. The analysis is based on secondary quantitative data obtained from official sources, including the Ministry of Finance, annual state budget reports, the Zakat, Tax and Customs Authority, and the General Authority for Statistics, with a focus on macroeconomic indicators related to tax and non-oil revenues.The study adopts a descriptive-analytical approach supported by descriptive and inferential statistical techniques using EViews 13 to examine the relationships between the reverse charge mechanism and key fiscal indicators. The findings reveal a statistically significant positive relationship between reverse charge revenues and total VAT revenues, indicating improved tax collection efficiency. Additionally, the results show a significant direct effect on total tax revenues, which recorded stable average annual growth of 27.3% during the study period. However, although the mechanism is positively associated with overall public revenues, this relationship is not statistically significant.The study contributes to the limited empirical literature by providing an early quantitative assessment of RCM effectiveness in Saudi Arabia and recommends improving VAT base measurement for non-resident transactions, strengthening compliance mechanisms, and reducing tax evasion to enhance the sustainability and efficiency of public revenues.