Saudi Arabia triples VAT, suspends handouts amidst corona crisis

News Network
May 11, 2020

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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News Network
October 28,2024

Fines of up to 300,000 Saudi riyals (approximately Rs 68 lakh) or imprisonment for up to five years will be imposed on anyone found guilty of abusive behaviour in workplaces, schools, or places of worship, the Saudi Public Prosecution announced in a statement on its official account on X (formerly Twitter).

The Public Prosecution emphasised that any harmful actions in these environments constitute a criminal offence, reiterating the importance of enforcing the Protection from Abuse Law.

The statement underlined the nation's commitment to ensuring a safe and secure environment for all, as part of broader efforts to protect individuals from violence and abuse.

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News Network
October 26,2024

iransystem.jpg

Iran’s air defense force has confirmed Israeli attacks targeting positions in Tehran, Khuzestan and Ilam provinces, saying the aggression was successfully thwarted. 

The Zionist regime launched its strike against Iran early Saturday, weeks after the Islamic Republic’s massive ballistic missile barrage on Israel, with the Zionist military saying the “precise strikes” by the Israeli Air Force targeted strategic military sites — specifically drone and ballistic missile manufacturing and launch sites, as well as air defense batteries.

The Iran's integrated air defense system successfully intercepted and countered the act of aggression. 

“Despite the previous warnings of the officials of the Islamic Republic to the criminal and illegal Zionist regime to avoid any adventurous action, this fake regime attacked parts of military centers in the provinces of Tehran, Khuzestan and Ilam this morning in a tension-causing action,” the air defense force said in a statement on Saturday morning.

The attacks caused limited damage in some locations and the dimensions of the incident are under investigation, the statement added.

Earlier, security sources said the loud sounds heard by some people in the vicinity of Tehran were due to the activation of air defense systems.

Iran’s official IRNA news agency cited a security source as saying on Saturday morning some of the sounds heard in the capital were caused by “defense activity in Tehran.”

The news agency said there were no reports of incidents that required assistance and that the situation at Mehrabad International Airport and the Imam Khomeini International Airport was “normal.”

IRNA said Iranian air defenses “successfully shot down adversarial targets in the airspace around Tehran province.”

Footage shared online captured what appeared to be interceptions over the Iranian capital.

Tasnim News Agency reported on Saturday morning that the situation was normal at Imam Khomeini International Airport and Mehrabad Airport.

No missile strike or impact occurred on Islamic Revolution Guards Corps (IRGC) military centers in the west and southwest of Tehran, the agency reported.

According to information obtained by the news agency, there has been no impact on IRGC military centers in the west or southwest of Tehran.

The sounds heard are related to the army’s air defenses engaging Israeli military actions in three areas around Tehran.

Informed sources told Tasnim that Iran is ready to respond to Israeli aggression, "as previously stated."

"Iran reserves its right to respond to any form of aggression, and there is no doubt that Israel will receive a proportional reaction to any action taken."

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News Network
October 25,2024

Udupi, Oct 25: A team of police from Udupi apprehended a Non-Resident Indian (NRI) at Kannur International Airport, Kerala, after he had been absconding overseas since 2019. 

Ashmath Ali (35) originally arrested on charges of recording a video of unnatural acts, had been out on bail granted by the second ACJ and JMFC court of Udupi on September 6, 2019.

Despite 18 arrest warrants issued in his name, Ali managed to evade authorities for years, frequently traveling abroad. 

Acting on a tip-off, sleuths from Kaup police station intercepted him as he landed at Kannur International Airport on October 21, marking the end of his prolonged evasion from Indian law enforcement. 

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