Saudi Arabia triples VAT, suspends handouts

Saudi Arabia unveiled plans Monday to triple its value added tax and halt monthly allowances to citizens as part of coronavirus-triggered austerity measures, while deepening oil production cuts to prop up sagging prices.

The austerity drive, which state media said would boost state coffers by 100 billion riyals ($26.6 billion), comes as the petro-state grapples with the twin blow of record low oil prices and a virus-led economic slump.

The steps could stir public resentment amid an already high cost of living and intensify scrutiny of lavish multi-billion dollar state projects and expenditure including the proposed purchase of English football club Newcastle United.

“It 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,” 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 “sharp decline” in oil revenue as the coronavirus pandemic saps global demand for crude.

The government was also “cancelling, extending or postponing” expenditure for some government agencies and cutting spending on projects introduced as part of the ambitious “Vision 2030” reform programme to diversify the oil-reliant economy, he added.

In an apparent effort to sweeten the bitter pill, state energy giant Aramco slashed domestic fuel prices by nearly half starting from Monday.

The savings from the austerity measures are unlikely to plug the kingdom’s huge budget deficit, which the Saudi Jadwa Investment group forecast would rise to a record $112 billion this year.

In another attempt to boost energy markets, the kingdom said it had asked Aramco to cut an additional one million barrels per day from June as it seeks to support prices hit by the demand-sapping pandemic.

The move — on top of last month’s agreement by OPEC and its allies to slash production — will reduce the output of the world’s biggest crude exporter to 7.5 million barrels per day, the lowest in nearly two decades.