Saudi Arabia Increases VAT and Other Financial Measures

Saudi Arabia announces to suspend the cost of living allowance and increasing the value-added tax (VAT) as part of measures to address the impact of the Coronavirus crisis.

Saudi Arabia triples VAT to Support Economy

Saudi Finance Minister Mohammed Al-Jadaan said the twin measures are part of efforts to shore up state finances, which have been battered by low oil prices and the Covid-19 pandemic.

Al-Jadaan warned last week that Saudi Arabia would have to take “strict and painful measures” to deal with the coronavirus crisis and falling worldwide oil prices.

Al-Jadaan said, we must reduce budget expenditures sharply and some government projects may be slowed down to reduce expenditure.

Current actions taken to date to cut spending are not enough, and Saudi public finances will need more control and the journey ahead is long,” he said.

Al-Jadaan added: “The measures taken today, as painful as they are, are necessary to maintain comprehensive financial and economic stability in the medium- and long-term.”

The following approved measures in order to protect the Saudi economy

• Cost of Living Allowance will be suspended as of June 2020.
• Value Added Tax (VAT) will be increase to 15% from 5% as of July 2020.
• The government has also taken some decisions to reduce the expenditure amounting to SR100 billion which include a number of Vision Realization Programs and major projects for the fiscal year 2020.

What is Cost of Living Allowance

The allowance of 1,000 riyals per month to state employees was introduced in 2018 to help offset increased financial burdens including VAT and a rise in the price of petrol.