Riyadh moves to ease burden of VAT on citizens

07 January 2018
King orders series of bonus payments and allowances for civil servants and military personnel

Riyadh has approved a series of bonus payments and allowances for civil servants and military personnel in a move aimed to ease the financial strain of the new VAT, introduced on 1 January.

King Salman bin Abdulaziz al-Saud issued the royal order on 6 January, which included:

  • An annual bonus for military personnel and civil servants for work last year
  • A monthly cost-of-living allowance of SR1,000 ($267) for military personnel and civil servants for one year
  • A payment of SR5,000 to military personnel serving in the southern border areas adjacent to Yemen
  • A payment of SR500 as a cost-of-living allowance for the retirement pension paid by the Public Pension Agency and the General Organisation for Social Insurance for the beneficiaries of the citizens for one year
  • An additional social security benefit payment of SR500 for one year
  • A 10 per cent increase in student allowances
  • The government will cover the VAT for private healthcare services and private education for citizens
  • The state will pay VAT not exceeding SR850,000 on first home purchases by Saudi citizens

The king also ordered that government employees receive their salaries on the 27th of each month according to the Gregorian calendar.

It is not the first time Riyadh has moved to ease the burden of its economic transformation on citizens. In May last year, the government issued a decree reversing pay cuts introduced last year for government employees, and at the same time issued another decree giving a bonus of two months’ salary to those involved directly in military operations in Yemen from the Interior Ministry, Defence Ministry, National Guard and intelligence services.

The Washington-based IMF said repeatedly last year that Riyadh should ease the pace of economic reform in the kingdom. It said the government should aim to balance its budget by 2022 rather than the 2019 target date set out in Riyadh’s fiscal balance programme.

The IMF argued that fiscal adjustment needs to continue but it is important to get the pace of the adjustment right. Too quick will unnecessarily hurt growth, but too slow an adjustment will see an undesirably large build-up in debt.

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