As part of Saudi Arabia”s National Transformation Plan, it has been proposed that the country begin to charge income tax on the wages of foreign nationals.
The tax-free status of Saudi Arabia and its neighbouring Gulf states has attracted millions of foreign workers over recent years, and whilst oil prices and accompanying revenue were high it was not necessary to impose any tax. However, oil prices have declined drastically over recent years, from a value of $100 a barrel in 2014 to a low of $30 this year. With oil being Saudi Arabia”s biggest industry this decrease has caused a significant slow to the country”s economy. It was recently reported that some companies have been struggling to pay foreign workers, and have terminated the employment of tens of thousands of (predominantly Indian) foreign workers, leaving many with no money for food let alone for flights home. There is estimated to be economic growth of just 1.5% this year, compared to 3.4% last year. In an attempt to counter this, Deputy Crown Prince Mohammed bin Salman has already taken measures such as cutting fuel and utility subsidies, and has proposed a reduction to the public sector wage bill.
Saudi Arabia is also set to join the other 5 members of the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates) in introducing Value Added Taxation (VAT) from 2018. It is useful to note that education, healthcare, social services and certain food items will not be subject to VAT. This taxation has been agreed in an effort to move the country”s economy away from depending on the oil industry.
To the same effect, the income tax proposed for the nine million foreign nationals living and working in Saudi Arabia is intended to generate non-oil revenue, as well as assist in creating new jobs for nationals, but the country”s Finance Minister, Ibrahim al-Assaf, has said that the proposal to tax foreign nationals is merely “an initiative that will be discussed”.
Opinions on this initiative are varied, with some worried that an introduction of taxes will deter foreigners from working and making investments into the country, as a tax-free country is a more attractive prospect.
However, others suggest that the proposed 10% tax rate is low compared to other countries across the world, and therefore foreigners would benefit from staying in Saudi Arabia rather than working in another country which may carry a heavier tax burden.
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