Saudi Move towards Taxes to Find State as Oil Crashes
· Expat
Fee, Subsidy Cuts to Balance Budget
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audi
Arabia followed a historic budget announcement last week with an 84-page
document outlining how the Arab world’s largest economy plans to balance its
budget by 2020. The document includes plans to curtail capital spending, raise
new revenue and stimulate the private sector.
Authorities
reviewed projects with a total cost of 490 billion riyals ($131 billion) under
the five civilian ministries with the highest capital spending. Of the total,
270 billion riyals had already been spent and the revision identified potential
savings of 100 billion riyals.
Additional
subsidy cuts will involve a steady change in energy and water prices from 2017
to 2020. This is expected to help the kingdom save 209 billion riyals annually
by 2020.
The
government is looking to increase prices of local retail fuel by linking them
to benchmark oil prices or to the average of gasoline and diesel fuel prices on
the international market.
The
partial reduction of subsidies has also helped slow the growth in energy
consumption to 1.7 percent in the first half of 2016 from 3.5 percent in the
same period a year earlier.
·
Expat Levy of 100 Riyal
per month for now, 400 Riyal by 2020
·
5% VAT from 2018
The
government plans to introduce a slew of taxes and fees, raising additional
revenue of 42 billion riyals in 2017 and 152 billion riyals by 2020. In 2017,
Saudi Arabia will introduce an unprecedented “expat levy” on foreign workers
with dependents.
The
fee will start at 100 riyals per month in July and rise each year to reach 400
riyals a month in July 2020, according to the document. It is unclear whether
the fee will be assessed for each dependent.
The
government will also raise the monthly fees paid by employers that have more
foreign workers than Saudis. It will no longer waive the fee for businesses
have fewer expats than nationals, instead charging them a “discounted rate.”
An
“excise tax on harmful products” -- including a 50 percent tax on soft drinks
and a 100 percent tax on tobacco and energy drinks -- will be implemented from
the second quarter of 2017. A 5 percent value-added tax will be imposed in the
first quarter of 2018. The government is studying taxes on sugary drinks and
snacks.
Authorities
will also impose “luxury tariffs” from the first quarter of 2018, the document
says, without elaboration.
Private-Sector
Stimulus Package – Stimulus Package of 200bn Riyal
In
the document, authorities acknowledge that confidence in the economy has
declined, private sector employment has dropped and real consumption per capita
is falling. To counter that, officials on Thursday announced a stimulus package
for the private sector worth 200 billion riyals ($53.3 billion) until 2020.
The
fund will provide “attractive investment capital to support the private
sector,” the document says. It will be directed to raising the efficiency of
industries with high energy and water usage. The package may be extended beyond
2020.
There
are also plans to ease rules governing foreign ownership of companies and land,
increase the mobility of foreign workers and deregulate industries like tourism
and entertainment to reduce barriers to growth, the document says.
Outlook
for the Economy, Decision-Making
Predictability
– No Additional Impost
Inflation
is seen accelerating each year as new measures are introduced.
The
kingdom pledges that there will be “no additional financial impositions’ by the
government on its citizens or private sector” beyond what’s already mentioned
in this document.
·
There will be no further
removal of subsidies
·
There will be no income
tax imposed on citizens
·
There will be no corporate
income tax
·
There will be a grace
period between policy announcements and action
·
There will be no delay in
contractor payments. The government will pay within 60 days of “due dates.”
·
There will be no
retroactive decision-making.