RIYADH: Tax-free living will soon be a
thing of the past for Saudis after cabinet on Monday approved an IMF-backed
value-added tax to be imposed across the Gulf following an oil slump.
Residents of the energy-rich region had
long enjoyed a tax-free and heavily subsidised existence but the collapse in
crude prices since 2014 sparked cutbacks and a search for new revenue. Saudi
Arabia is the world’s biggest oil exporter and the largest economy in the Arab
region.
It froze major building projects, cut
cabinet ministers’ salaries and imposed a wage freeze on civil servants to cope
with last year’s record budget deficit of $97 billion. It also made
unprecedented cuts to fuel and utilities subsidies.
The kingdom is broadening its
investment base and boosting other non-oil income as part of economic
diversification efforts and aims to balance its budget by 2020.
Cabinet “decided to approve the Unified
Agreement for Value Added Tax” to be implemented throughout the six-member Gulf
Cooperation Council, the official Saudi Press Agency said. “A Royal Decree has
been prepared,” it said.
A five-percent levy will apply to
certain goods following a GCC agreement last June.
The move is in line with an
International Monetary Fund recommendation for Gulf states to impose
revenue-raising measures including excise and value-added taxes to help their
adjustment to lower crude prices which have slowed regional growth.
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