May 11: Saudi Arabia will triple its value-added tax rate and suspend a cost of living allowance for state workers, it said on Monday, seeking to shield finances hit by low oil prices and a slump in demand for its lifeline export worsened by the new coronavirus.
Historic oil output cuts agreed by Riyadh and other major producers have given only limited support to prices after they sank on oversupply caused by a war for petroleum market share between the kingdom and its fellow oil titan Russia.
Saudi Arabia, the world's largest oil exporter, is also being hit hard by measures to fight the new coronavirus, which are likely to curb the pace and scale of economic reforms launched by Crown Prince Mohammed bin Salman.
"The cost of living allowance will be suspended as of June 1, and the value added tax will be increased to 15% from 5% as of July 1," Finance Minister Mohammed al-Jadaan said in a statement reported by the state news agency. "These measures are painful but necessary to maintain financial and economic stability over the medium to long term...and to overcome the unprecedented coronavirus crisis with the least damage possible."
The austerity measures come after the kingdom posted a $9 billion budget deficit in the first quarter.
The minister said non-oil revenues were affected by the suspension and decline in economic activity, while spending had risen due to unplanned strains on the healthcare sector and the initiatives taken to support the economy.
"All these challenges have cut state revenues, pressured public finances to a level that is hard to deal with going forward without affecting the overall economy in the medium to long term, which requires more spending cuts and measures to support non-oil revenues stability," he added.
The government has cancelled and put on hold some operating and capital expenditures for some government agencies, and cut allocations for some reform initiatives and projects worth a total 100 billion riyals ($26.6 billion), the statement said.
Central bank foreign reserves fell in March at their fastest rate in at least 20 years and to their lowest since 2011, while oil revenues in the first three months of the year fell 24% from a year earlier to $34 billion, pulling total revenues down 22%.
"The reforms are positive from a fiscal side as greater adjustment is essential. However, the tripling of VAT is unlikely to help that much in 2020 revenue wise with the expected fall in consumption," said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
She said she kept unchanged her deficit forecast of 16.3% of GDP for this year, which already factors in a greater than previously announced spending cut.
About 1.5 million Saudis are employed in the government sector, according to official figures released in December.
In 2018, Saudi Arabia's King Salman ordered a monthly payment of 1,000 riyals ($267) to every state employee to compensate them for the rising living costs after the government hiked domestic gas prices and introduced value-added tax.
DIFFICULT TIMES
A committee has been formed to study all financial benefits paid to public sector employees and contractors, and will submit recommendations within 30 days, the statement said.
In late 2015, when oil prices fell from record highs, the kingdom slashed lavish bonuses, overtime payments and other benefits once considered routine perks in the public sector.
In a country without elections and with political legitimacy resting partly on distribution of oil revenue, the ability of citizens to adapt to such reforms is crucial for stability.
"Tripling the VAT will test the limits of the balance between revenues and consumption as the economy dives into a deep recession. The move will impact consumption and could also lower the expected revenues," said John Sfakianakis, a Gulf expert at the University of Cambridge.
"These are pro-austerity and pro-revenue moves rather than pro-growth ones," he said.
Hasnain Malik, head of equity strategy at Tellimer, said the VAT rise could bring about $24-$26.5 billion in additional non-oil fiscal revenue. The rise would hit consumer spending further but was a needed step towards fiscal sustainability, he said.
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First of all, Hindu religion is recognized fro AHIMSA non voilant - Which was proven by our Father Of Nation Mahtma Gandhi. Who spent his whole life for the sake of all INDIANS and not or his self benifit. Only because of his daring step and policy all patriot Indians united and fought for the Independnece wiht out any cast adn colour discrepnacy.
The group supported the british behind the screen and with in short perod of our independence assasinated
the mahtma and now talking ablut Hindu religion by regularly holding a lathi is not the sign of HINDU religion. In Hindu religion all are with ONE status adn there is no upper and lower cast. All human created by ONE god. Then how come there is upper cast brhamin. Why these rss terrorists omit cast poison all over India. This fellow bhagawath and his terrorist group as no rght to talk abuot hindu religion. Shortly rss is ONLY the enemy of Hindu and Hindustan.
All must boycot and kick vanish them from our graeat India.
Jai Hind !
The people who worship IDOL will directly go to Hell forever there is no second chance in this..
people must think who created idol first, its a man made item which you cannot bow down.
now in india many babas takes advantage of it, even politician
GOD says clearly there is no image of him, he is supreme and we cant see him bcoz our eye dont have capability.
This ch**iya man talks about patrotism, they are the people who are slave of british when people of real indian fighting for freedom.
patriotism does not comes by ugly mouth, this shoul come from action when it need for our country.
dont ever belive these marons will fight to defend india when it need.
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