In the Kingdom’s bid to offset the impact of the global crisis caused by the virus outbreak that has paralyzed economic activities for more than four months already, Saudi Arabia is cutting down its expenses, suspending the cost of living allowance and increasing the value-added tax (VAT) three-fold to 15%.
Along with the proposed VAT hike set to take effect in July, Saudi Arabia is also looking to discontinue the cost of living allowance starting June.
Saudi to Push for 15% VAT to Buttress Economy – Finance Minister
The proposed measures according to Saudi’s minister of finance, Mohammed Al Jadaan, aim “to protect the kingdom’s economy to overcome the unprecedented global crisis due to the viral outbreak and its financial and economic repercussions with minimal damage,” as shared in a report by The National.
In addition to these measures, Saudi Arabia will cancel, extend, or postpone some operational and capital expenditures for some government agencies, in addition to reducing provisions for a number of initiatives from its Vision 2030, the kingdom’s economic diversification program, and major projects for the 2020 fiscal year, Al Jadaan shared.
Globally, the viral outbreak has wiped at least $17 trillion (AED 62.4tn) from stock markets globally and led to governments rolling out over $8tn in stimulus packages, as global trade came to a standstill and countries went into lockdowns.
The finance minister explained that the crisis has caused three economic shocks, “each of which could in itself have an extremely negative effect on the performance and stability of public finance had the government not intervened by taking measures to absorb them.”
The first economic shock, Al Jadaan explained was the unprecedented decline in oil demand, which led to lower oil prices and a sharp decline in oil revenue that represents the main source of public revenue for the state budget.
The second economic shock came in the form of the necessary precautionary measures undertaken to protect the lives of citizens and residents and to prevent the spread of the virus, which also affected non-oil revenue and economic growth.
And the third shock came in the form of unplanned expenses that required government intervention by increasing provisions for the healthcare sector to support the prevention and treatment capacity of health services, in addition to the adoption of several initiatives to support the economy, to mitigate the economic effects of the global health crisis and maintain jobs for citizens.
Considering all these, Al Jadaan shared that the kingdom has established a ministerial committee 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, centers, and programs and will present its recommendations within the next 30 days.
Acknowledging that the whole world is facing a crisis unlike none it has ever experienced before, Al Jadaan explained that the increase in VAT along with other economic measures, that as tough as they are, are necessary and beneficial to maintain comprehensive financial and economic stability on the medium and long-term for the interest of the country and its citizens.
What are your thoughts about Saudi Arabia’s decision to impose a hike in VAT from 5% to 15% amid the crisis the world is currently facing? Let us know through the comments section below.