Saudi Arabia triples VAT rate in austerity push to counter oil slump, coronavirus
Saudi Arabia will triple value added tax and suspend a cost of living allowance for state workers, it said on Monday, seeking to shore up finances hit by low oil prices as the coronavirus pandemic pummels global demand for its lifeline export.
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 Price 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,” said Finance Minister Mohammed al-Jadaan.
“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,” he added in a statement.
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.