Saudis to be exempt from income tax
London - Saudi Arabia’s working population likely breathed a collective sigh of relief with word that income taxes would not be a reality it will have to contend with in the foreseeable future.
Saudi Finance Minister Mohammed al-Jadaan, on April 9, said no taxes would be imposed on the income of Saudi citizens or the profits of Saudi companies, ending months of speculation.
Jadaan stressed that the value-added tax (VAT) set for the Gulf Cooperation Council (GCC) in 2018 would remain at 5% until 2020.
“The profit tax will not be levied on Saudi companies nor will the tax on the income of the citizen be increased,” he said. “The value-added tax will not be increased by more than 5% by 2020. Financial dues will be paid to contractors, suppliers and contractors within a period not exceeding 60 days from the date of maturity.”
The Saudi cabinet has endorsed the GCC-wide agreement for the VAT. However, on harmful products, such as tobacco and sugary soft drinks, the 5% tax cap no longer applies. Tobacco taxes will be raised 100% and duties on fizzy and energy drinks will go up 50% by the end of April.
“The excise tax is a special tax that will be implemented on specific products with harmful health effects to disincentivise consumption of such products,” the kingdom’s Fiscal Balance Programme 2020 report said.
Saudi Arabia is the only GCC country set to impose such taxes but the United Arab Emirates is considering a similar initiative.
In an interview with Bloomberg News in April 2016, Saudi Deputy Crown Prince Mohammed bin Salman bin Abdulaziz, the architect of Vision 2030, said the kingdom did not see income or property taxes as a part of its overall strategy.
Saudi Arabia and other GCC members are implementing much-needed economic reforms to diversify their economies from the energy sector, a consequence of several years of falling oil prices.
Jadaan said the drive in reforming the Saudi economy will include cuts in spending and the introduction of taxes but government stimuli as well. He said the government plans on infusing $53 billion in the private sector over the next four years.
Saudi Arabia’s ambitious Vision 2030 programme aims to tackle these challenges, however some reforms and austerity measures will likely result in lifestyle changes for many Saudis who have long depended on government subsidies.
Among the National Transformation Programme’s goals is the reduction of the country’s public sector wage costs from 45% currently to 40% by 2020. Last October, Riyadh slashed public sector benefits and bonuses. Riyadh also halted several major building projects to offset a $97 billion budget deficit.
Jadaan said the non-oil sector’s role in achieving Vision 2030’s economic goals was essential, stressing that it should grow at a rate of 8.5% a year with a gross domestic product increase of $400 million.
In January, the International Monetary Fund lauded the Saudis’ budget plans, calling them in line with recommendations and that the goal of eliminating the budget deficit by 2020 was feasible.