Saudi Arabia triples Value-Added Tax and suspends cost of living allowance

United Nations Secretary General Antonio Guterres holds a press conference at the United Nations Headquarters in New York United States

United Nations Secretary General Antonio Guterres holds a press conference at the United Nations Headquarters in New York United States

The finance minister said that these financial measures, as well as some other strategies of "cancelling, extending, or postponing" governmental expenditures, are expected to save the national economy around 100 billion riyals ($26.6 billion).

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The kingdom will suspend a cost-of-living allowance for government workers starting in June and hike Value-Added Tax from the current rate of five percent to 15 percent as of July 1, the Ministry of Finance announced on Monday. The International Monetary Fund projects that all six energy producing Gulf Arab states will be in economic recession this year.

The Saudi government has announced that the cost of living allowances will also be suspended to increase government finances.

"The combination of record-low oil prices and mounting demographic pressures poses significant challenges to Prince Mohammed's (MBS) future plans in Saudi Arabia", according to The Soufan Center think tank.

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Oil revenues in the first three months of the year fell 24 percent from a year earlier to $34bn, pulling total revenues down 22 percent.

While Saudi Arabia has taken dramatic measures to combat the virus including shutting down mosques and imposing curfews, the number of cases has crossed 39,000 with over 1,900 new cases reported on Sunday. Those allowances had cost the state about $13.5 billion annually. Under the most recent OPEC+ deal, Saudi Arabia was targeting production of 8.492 million barrels a day.

The Minister explained that due to the precautionary measures undertaken worldwide to combat the pandemic, the first economic shock was the unprecedented decline in oil demand, which led to lower oil prices and a sharp decline in oil revenue that represents a main source of public revenue for the state budget. Since its inception, the program has paid some $19.5 billion to citizens with average monthly support per family about $240.

When in 2018, Saudi Arabia first introduced Value-Added Tax as part of efforts to cut its reliance on world oil markets; it also introduced "the cost of living" allowance to citizens to cushion the impact of rising costs.

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