Proposal to impose tax on foreign workers is part of National Transformation Plan
Saudi Arabia, the biggest Arab economy and home to millions of expatriate workers, is considering plan to tax foreign residents. The kingdom is seeking to boost alternative revenue streams to cut its reliance on income from the sale of crude.
The proposal is part of the National Transformation Plan (NTP), a detailed roadmap of the kingdoms broader economic reform agenda, Vision 2030.
It is an initiative that will be discussed, Finance Minister Ibrahim al-Assaf said of the plans to tax foreign workers, at a news conference in Jeddah. 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.
The proposal, however, is unlikely to be pursued aggressively in the near future as it will make the kingdom less attractive to foreign investment, which it needs to revive growth hit by the slump in oil prices.
Saudi Arabias powerful Deputy Crown Prince Mohammed bin Salman al-Saud has already cut fuel and utility subsidies, and he plans to cut the public sector wage bill by 5 per cent of total state spending in the next five years under the NTP. The kingdom is also joining other Gulf states in introducing value-added tax (VAT) from the beginning of 2018.
Deepening the taxation base will be an important step in increasing non-oil revenues, which will likely start with VAT first, but the discussion of income tax is notable, US news agency Bloomberg cited Monica Malik, chief economist at Abu Dhabi Commercial Bank, as saying. Introducing the tax could support efforts to create more jobs for nationals, but if it is not done in coordination with other GCC countries then it will also reduce the competitiveness of Saudi Arabia to attract labour, she said.
There are 9 million foreigners living and working in Saudi Arabia, Mufrej al-Haqbani, the countrys labour minister, said. Finance Minister Al-Assaf said the government has no plans to tax Saudi nationals.
Oil, which accounted for more than 70 per cent of government revenues in 2015, slumped from a mid-2014 peak of more than $110 a barrel to less than $30 at the beginning of this year, which has forced spending cuts. The government delayed payments to contractors, drew down on its foreign reserves and turned to the domestic bond market. It is knocking doors to tap the international debt market for as much as a $15bn sovereign bond.
Al-Assaf said the government is on track to balance the budget by 2020, and confirmed current discussions to sell international bonds. The kingdom is expected to post a $86bn budget shortfall this year. The NTP sees public debt climbing to 30 per cent of economic output by 2020, from the current 7.7 per cent.
The increase suggests the kingdom may raise an additional $200bn in debt in the coming five years, the current year included, Mohamed Abu Basha, an economist at Cairo-based investment bank EFG-Hermes told Bloomberg.