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 21,2024

Mangaluru: The MLC by-election for the Dakshina Kannada and Udupi Local Authorities Constituency commenced at 8 AM on Monday, with voting set to continue until 4 PM. A total of 392 polling booths have been established across the two districts, which form the constituency.

The constituency has 6,032 eligible voters, including 3,127 women. Early reports indicated brisk voting at the Mangaluru City Corporation polling booth, where corporators were seen patiently standing in line in the morning.

In a unique moment, Sharath, a gram panchayat member from Kokkada, cast his vote at Kokkada Gram Panchayat before heading to his wedding ceremony.

The constituency features 53 sensitive polling booths. Eligible voters include members of gram panchayats, corporators from Mangaluru City Corporation, city and town municipal councils, town panchayats, MLAs, MLCs, and Lok Sabha members representing the Dakshina Kannada and Udupi districts.

Notably, Byndoor MLA Gururaj Gantihole and MLC Prathap Simha Nayak, who do not represent local bodies, were left out of the voters' list. According to electoral rules, only those MLAs, MLCs, and MPs who represent city corporations, municipalities, town panchayats, taluk panchayats, or zilla panchayats are granted voting rights in the MLC elections for the Local Authorities’ Constituency.

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News Network
October 26,2024

beach.jpg

Udupi, Oct 26: In a heartbreaking incident in Beejadi village near Kundapur in Udupi district, two young men were swept away by a powerful wave while swimming in the sea on Saturday morning. 

Santosh, 21, was pulled from the water by local fishermen and residents, but tragically, he succumbed to his injuries on the way to the hospital. Ajay, who was also caught in the wave, remains missing, according to Kundapur police.

The duo, along with friends Shreyas and Mokshith, had been staying at the Sahana Sun Caste Resort to attend a wedding. Ignoring warnings from locals about the dangers of entering the sea, the group ventured into the water. Around 9:30 a.m., a large wave suddenly engulfed them, sweeping Ajay and Santosh into deeper waters.

Police reported that Ajay hailed from Hangalli village near Kundapur, while Santosh was from Dasarahalli near Bengaluru. Expert divers have been dispatched to the scene in hopes of locating Ajay’s body.

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News Network
October 29,2024

Nagpur: Police in Maharashtra's Nagpur have identified 35-year-old Jagdish Uikey from Gondia as the man behind a series of hoax bomb threats that caused widespread panic, flight delays, and increased security at various establishments across the state, officials revealed.

Uikey, an author who wrote a book on terrorism and was previously arrested in 2021, is now on the run after police traced the recent hoax emails to him, confirmed a senior police official. The investigation, led by Deputy Commissioner of Police (DCP) Shweta Khedkar, uncovered substantial evidence linking Uikey to the threatening emails.

These emails were sent to multiple government agencies, including the Prime Minister’s Office (PMO), Railway Minister, Maharashtra Chief Minister Eknath Shinde, airline offices, the Director General of Police (DGP), and the Railway Protection Force (RPF). On October 21, Uikey even emailed Railway Minister Ashwini Vaishnaw, leading to heightened security at railway stations.

On Monday, the Nagpur police intensified security around Deputy Chief Minister and Home Minister Devendra Fadnavis's residence after Uikey’s email threatened a protest unless he could present his findings on a secret terror code he claimed to have deciphered. He also requested a meeting with Prime Minister Narendra Modi to discuss his information on terror threats.

In the 13 days leading up to October 26, Indian carriers received over 300 hoax bomb threats, with about 50 flights— including those of IndiGo and Air India— targeted on October 22 alone, sources said.

A special team has been deployed to locate and arrest Uikey, and authorities remain confident that he will be apprehended soon.

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