Saudi Arabia: Raising VAT and suspending the cost of living allowance to manage the economy

Saudi Arabia

As part of the government’s efforts in the Kingdom of Saudi Arabia to manage the economy from the impact of the Coronavirus and the crash in prices, the government has announced to suspending the cost-of-living allowances starting from June 2020 and increasing the value-added tax (VAT) from 5% to 15% from the beginning of July 2020. These are the important measures announced and confirmed by the Minister of Finance and the Minister of Economy and Planning, Mohammed Al-Jadaan.

He explained the importance of taking measures and decisions that protect the Kingdom’s economy to be able to confront this crisis with the least possible losses, and he also highlighted that these measures will be the least harmful to the economy and the country’s financial strength.

 

On Monday, the minister of Saudi Arabia  indicated that the total spending for 2020 will remain close to what was planned, with the reallocation of funds for health care and companies’ assistance. “These are the priorities: health care for people and people’s livelihoods”, “We want to make sure that we maintain our financial strength so that we can support the economy when we get out of that crisis,” he said.

 

Raising the value-added will not have a significant impact on revenue this year because people spend less because of the curfew, but it will help more next year and the year after getting out from the COVID -19.”

 

There are challenges caused by the global pandemic resulting in economic shocks, which was the decline in oil demand and consequently a negative impact on prices and a sharp drop in oil revenues, which is the main source of government revenue for the state budget.

In addition to the effects resulting from the necessary preventive measures taken to protect the lives and safety of citizens and residents, prevent the spread of the virus and support the healthcare sector, which led to the suspension or decline of many local economic activities, which had negatively impacted on non-oil revenues and economic growth.