The threefold-rise in value-added tax (VAT) announced by Saudi Arabia to tackle the economic impact from the coronavirus pandemic was necessary, according to local reports on Tuesday.
Citing Al-Riyadh, Al-Yaum, and Al-Bilad newspapers, and the country’s official Saudi News Agency (SPA), the additional measures announced were moves to protect the national economy and citizen’s future and were “not an option as much as a necessity imposed by the current conditions.”
Pointing to the impacts of the pandemic on the national economy, SPA said it led to a decline in oil revenues, cessation of many local economic activities and increased the already huge financial allocations to the health sector.
According to the SPA, these shocks confused the national economy and caused fundamental changes in the order of its priorities, which made it necessary “to find quick solutions that guarantee the preservation of the homeland's gains.”
Moody’s Vice President and Analyst Alexander Perjessy said Saudi Arabia's planned new fiscal stimulus program would help cover a portion of this year's revenue loss caused by a sharp fall in oil prices and lower oil production. It also said the move also shows the government’s capacity to respond to shocks.
“The new spending cuts, together with those already announced in March and those approved in the 2020 budget, are equivalent to nearly 8% of GDP,” Perjessy said, noting that up to 5% of GDP in extra annual revenue could be generated by tripling the value-added tax rate to 15%.
Earlier, quoting Saudi Finance Minister Mohammed al-Jadaan, the official SPA news agency said the VAT rates would increase from 5% to 15% in July.
The Saudi minister described the measures as "important to shield the kingdom's economy to overcome the unprecedented global coronavirus pandemic and its financial and economic repercussions with the least damage possible".
Al-Jadaan said the pandemic has caused an unprecedented slump in oil demand, a decline in economic activity, and a rise in expenses needed to stem the spread of coronavirus.
According to the US-based Johns Hopkins Coronavirus Resource Centre, Saudi Arabia has so far reported 39,048 COVID-19 cases with 246 deaths.
By Sibel Morrow