Tax-free living will soon be a thing of the past for Saudis after the cabinet approved an IMF-backed value-added tax to be imposed across the Gulf following an oil slump. Residents of the energy-rich region had long enjoyed a tax-free and heavily subsidised existence but the collapse in crude prices since 2014 sparked cutbacks and a search for new revenue.
About three million Indians — several of them from Kerala — live in the Arab kingdom. According to World Bank data from 2014, India is the largest recipient of remittance flows in the world receiving about $70 billion (roughly Rs 4.2 lakh crore), out of which the figure from Saudi Arabia alone was $10.51 billion in 2015.
As value-added tax has been imposed in the Arab nation, the cost of living will go up, eating into some of the savings of Indians, leaving them less to send home to India.
What's more, Saudi Arabia in its Budget last month has already proposed to levy fees on each dependent of an expat worker, starting from July 2017. According to the proposal, expatriates in the country, including Indians, will have to pay 100 Saudi riyals a month to the passport office, for every dependent person (spouse or children). This fee is to be paid at the time of renewals of Iqama, the residence permit issued to expatriates who are in Saudi on employment visas. Iqamas are typically renewed every year. This fee will be increased to 200 Saudi riyals in 2018, and SR300 the following year.
Saudi Arabia is the world's biggest oil exporter and the largest economy in the Arab region. It froze major building projects, cut cabinet ministers' salaries and imposed a wage freeze on civil servants to cope with last year's record budget deficit of $97 billion. It also made unprecedented cuts to fuel and utilities subsidies.
The kingdom is broadening its investment base and boosting other non-oil income as part of economic diversification efforts and aims to balance its budget by 2020.
Cabinet "decided to approve the Unified Agreement for Value Added Tax" to be implemented throughout the six-member Gulf Cooperation Council, the official Saudi Press Agency said. "A Royal Decree has been prepared," it said.
A five-percent levy will apply to certain goods following a GCC agreement last June.
The move is in line with an International Monetary Fund recommendation for Gulf states to impose revenue-raising measures including excise and value-added taxes to help their adjustment to lower crude prices which have slowed regional growth.
The GCC countries have already agreed to implement selective taxes on tobacco, and soft and energy drinks this year.
(With AFP inputs)