HomeAnalysisCOVID 19: Saudi triples VAT, suspends monthly payment to citizens

COVID 19: Saudi triples VAT, suspends monthly payment to citizens

Saudi Arabiaโ€™s finance minister on Monday said the kingdom will triple its Value Added Tax and halt monthly handout payments to citizens in new austerity measures amid record low oil prices and a coronavirus-led economic slump.

The measures, which could stir public resentment with the cost of living rising, come as the petro-state steps up emergency plans to slash government spending to deal with the twin economic blow.

โ€œIt has been decided the cost of living allowance will be halted from June 2020 and VAT will be raised from 5 percent to 15 percent from July 1,โ€ Finance Minister Mohammed al-Jadaan said in a statement released by the official Saudi Press Agency.

Jadaan insisted the measures were necessary to shore up state finances amid a โ€œsharp declineโ€ in oil revenue as the coronavirus pandemic saps global demand for crude.

The government was also โ€œcancelling, extending or postponingโ€ expenditures for some government agencies and cutting spending on major state projects introduced as part of an ambitious reform programme to diversify the oil-reliant economy, the minister added.

Jadaan last week warned of โ€œpainfulโ€ and โ€œdrasticโ€ steps to deal with the double shock of the novel coronavirus and record low oil prices.

Saudi Arabia, the top crude exporter and the Arab worldโ€™s biggest economy, has shut down cinemas and restaurants, halted flights, and suspended the year-round umrah pilgrimage in a bid to contain the deadly virus.

Saudi Arabia, along with other Gulf states, imposed a five percent tax on goods and services in 2018 in a bid to generate additional revenue.

The petro-state had also introduced handouts worth billions of dollars to citizens, known as the cost of living allowance, to cushion the impact of rising costs.

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