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s Saudi Arabia has charged value added tax (VAT) on goods and services since the beginning of this year, the government and travel agencies here are bracing for the expected impact of the policy on religious pilgrimages to the Gulf country.

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).

Saudi Arabia set a quota of 221,000 people from Indonesia to go on the haj last year, marking an increase from 168,800 people in the previous year, when the number was capped because of the construction of the Al Haram Mosque.

With an average of 650,000 Indonesians visiting the city for the umrah, the market is estimated at a value of $1 billion annually.

Sulthanan Nashira Wisata travel agency CEO Ajeng Rahmani Rijadi predicted the price hike would slash to a third the number of pilgrim customers this year. “Usually, we dispatch 600 umrah pilgrims annually, but for 2018, I believe we can dispatch only 200 pilgrims at most,” she said.

Travel agents will have to increase its umrah package price from around Rp 16 million ($1,120) to around Rp 22 million this year. (srs)