DUBAI – Saudi Arabia announced Monday it was tripling taxes on basic goods, raising them to 15%, and cutting spending on major projects by around $26 billion as it grapples with blows from the coronavirus pandemic and low oil prices on its economy.
Saudi citizens will also lose a bonus cost-of-living allowance that had been in place since 2018, according to the country’s finance minister.
Despite efforts to diversify the economy, the kingdom continues to rely heavily on oil for revenue. Brent crude now hovers around $30 a barrel, far below the range Saudi Arabia needs to balance its budget. The kingdom has also lost revenue from the suspension of Muslim pilgrimages to the holy cities of Mecca and Medina, which were closed to visitors due to the virus.
The new measures are the most drastic yet by a major Gulf Arab oil producer since oil prices plunged by more than half in March, signalling that neighboring countries may also seek to impose higher taxes on residents this year. The United Arab Emirates said Monday it currently had no similar plans to raise taxes.
The International Monetary Fund projects that all six energy producing Gulf Arab states will be in economic recession this year.
“We are facing a crisis the world has never seen the likes of in modern history, a crisis marked by uncertainty,” Saudi finance minister and acting minister of economy and planning, Mohammed Al-Jadaan, said.
“These measures that have been undertaken today, as tough as they are, are necessary and beneficial to maintain comprehensive financial and economic stability," he said in a statement published on the state-run Saudi Press Agency.
In the first quarter of 2020, state revenues were down 22% from the same time last year, with the deficit reaching $9 billion, or 34 billion riyals. Oil revenues specifically were down 24%, compared to the same quarter last year.