A major oil producer and exporter, Saudi Arabia, has announced that its Value Added Tax (VAT) will increase from 5 to 15 per cent.
The government of Saudi Arabia has announced that it would suspend the cost of living allowance from June 1.
Saudi Arabia’s minister of finance and acting minister of economy and planning, Mohammed Aljadaan said on Monday that the measures were necessary to “overcome the unprecedented financial and economic ramifications of the global coronavirus pandemic in the best way possible”.
These measures are painful but necessary to maintain financial and economic stability over [the] medium to long term… and overcome the unprecedented coronavirus crisis with the least damage possible,” SPA quoted Aljadaan to have said.
“We must reduce budget expenditures sharply. Current actions taken to date to cut spending are not enough, and Saudi public finances will need more control and the journey ahead is long.
“The cost-of-living allowance shall be discontinued as of June 2020 and VAT shall increase from 5% to 15% as of July 2020.
Also, to improve spending efficiency, a ministerial committee has been established to study the financial benefits paid to all employees, contractors and those of similar status who are not subject to civil service law in government ministries, institutions, authorities, centres, and programs, and present its recommendations within 30 days.”
The minister said other measures that would be implemented including “cancelling, extending, or postponing some operational and capital expenditures for some government agencies, as well reducing provisions for major projects” in the 2020 fiscal year.
The Saudi Arabian government introduced VAT in January 2018 to boost non-oil revenue after the crude oil prices dipped sharply in 2015.
In 2019, Saudi Arabia raised $25.6 billion in an initial public offering of shares in Saudi Aramco, the state-owned oil company.
The share sale is part of the country’s effort to wean off its economy from oil dependence.