Saudi Arabia triples VAT rate as oil revenues tumble
Saudi Arabia will triple its value added tax and suspend a cost of living allowance for state employees.
The Kingdom’s Finance Minister made the announcement Monday (May 11), as authorities tried to protect an economy battered by falling oil prices and a slowdown.
Mohammed al-Jadaan said VAT would rise from 5 to 15% from July 1st, while the living allowance will be suspended from June 1st.
The Minister called the measures ‘painful’ but ‘necessary’ to shore-up the economy in the medium to long-term.
About 1.5 million Saudis work in the state sector.
Since 2018 Riyadh has paid state employees $267 a month to compensate for the higher cost of living after VAT was first introduced.
The austerity measures come as Saudi Arabia posted a $9 billion budget deficit in the first quarter.
The world’s largest oil exporter was hurt by a slump in prices.
Oil revenues fell 24% from a year earlier in the first three months of the year to $34 billion.
But with consumer spending expected to tumble, some economists say the VAT hike may not do much to plug the budget hole.