Saudi Arabia government on Monday unveiled plans to triple its Value Added Tax (VAT) to shore up its economy hit by the crash of oil prices due to the coronavirus pandemic.
The government also said it would halt the monthly cost of living allowance for its citizens, Saudi’s official press agency reports.
The move is part of austerity measures to stake state finances as the income from the country’s mainstay, oil, continues to plummet.
According to its Finance Minister, Mohammed Al Jadaan, the VAT would be increased from 5 percent to 15 percent from July 1 while the monthly living handouts would stop from June 1.
“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,” Mr Al-Jadaan said in a statement posted on the Saudi Press Agency’s website.
The austerity measures, he said, would boost state coffers by 100 billion riyals (N10.3 trillion) as the government steps up emergency plans to slash spending to deal with the economic and social blows from the pandemic.
When in 2018, Saudi Arabia first introduced VAT as part of efforts to cut its reliance on world oil markets; it also introduced ‘the cost of living’ allowance to citizens to cushion the impact of rising costs.
There could be public resentment towards the new austerity measures amid coronavirus lockdown on businesses.
The Arab world’s biggest economy earlier shut down cinemas and restaurants, halted flights, and suspended the year-round umrah pilgrimage in a bid to contain the deadly virus.
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But the finance minister insisted the measures were necessary to shore up state finances in the age of coronavirus that has sapped the global economy and has resulted in ‘sharp decline’ in oil revenue.
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, the minister added.
The minister had earlier warned of ‘painful’ and ‘drastic’ steps to deal with the double shock of the novel coronavirus and record low oil prices.