Saudi Arabia is considering a plan to tax millions of foreign residents as the kingdom seeks to reduce its reliance on oil revenue after the plunge in crude prices.The proposal was included in the country’s National Transformation Plan, an ambitious multi-year program released this week.
But the tax element is only “an initiative that will be discussed,” Finance Minister Ibrahim al-Assaf said. “It is in reality an old proposal, and it was presented in the past, but it is one of the initiatives that will be raised by the finance ministry.”
Economists said the proposal is unlikely to see the light soon because it could hamper the kingdom’s ability to attract the foreign investment it needs to revive growth hit by the oil slump. Still, raising the possibility of income tax in the blueprint -- even if only on foreigners -- shows the readiness of its architect, Deputy Crown Prince Mohammed bin Salman, to consider steps that past Saudi rulers have shunned.
Prince Mohammed, the king's son and second-in-line to the throne, has already cut fuel and utility subsidies and proposed reducing the public-sector wage bill. The kingdom is also joining other members of the six-nation Gulf Cooperation Council in imposing value-added taxation starting from 2018.
Less competitive
"Deepening the taxation base will be an important step in increasing non-oil revenue, which will likely start with VAT first, but the discussion of income tax is notable," said Monica Malik, chief economist at Abu Dhabi Commercial Bank. Introducing the tax could support efforts to create more jobs for nationals, but if it's not done in coordination with other GCC countries then it will also "reduce the competitiveness of Saudi Arabia to attract labor," she said.
The status of Gulf Arab monarchies as tax-free havens has helped attract millions of foreign workers. The revenue wasn’t missed when oil prices were high, but some economists say introducing income tax may be inevitable now.There are nine million foreigners living and working in Saudi Arabia, Mufrej Al-Haqbani, the country’s labor minister said. Assaf said the government has no plans to tax Saudi nationals.Mohammed Alsuwayed, the Riyadh-based head of capital and money markets at Adeem Capital, said he doesn’t expect expats to be taxed any time soon, either.
‘Attractive Prospects’
"I don't believe it's wise to introduce such a thing at a time when the kingdom is trying hard to attract direct foreign investments and not having income taxes was one of the most attractive prospects here," he said.Said A. Al-Shaikh, chief economist at the kingdom's National Commercial Bank, said the success "of any such tax would really depend on the rate imposed and the segments of foreign workers that would be levied on."
“A tax on foreigners may end up being borne by their employers, who will find it more difficult to attract staff and fill posts whether it’s for low or high wage jobs,” he said.
Bloomberg
