Saudi Arabia will implement an increase in the value-added tax rate (VAT) from 5% to 15% as part of its slew of measures that aim to offset the challenges associated with the COVID-19 outbreak in the kingdom, KSA's Finance Minister, HE Mohammed bin Abdullah Al-Jadaan announced.
The announcement was made in view of the three 'shocks' produced by the ongoing crisis, which include an unprecedented decline in the demand for oil; shutdown or decline of local economic activities as a result of preventive measures; and unplanned expenses and impact on public finances, HE Al-Jadaan said in an official statement released by state-run Saudi Press Agency.
The aforementioned challenges combined led to a decline in government revenues, non-oil revenues, and overall economic growth, he added.
The steps taken to mitigate the economic impact of the pandemic are valued at $26.6bn (100bn Saudi Riyals). These include the cancellation, extension or postponement of some items of operating and capital expenditures for a number of government agencies and the reduction of the credits of a number of initiatives.
In addition, the kingdom will suspend the cost of living allowance, with effect from June 2020. The increase in VAT rate will be implemented from July 2020, HE Al-Jadaan said.
Commenting on the decision, HE Al-Jadaan added: "We are facing a crisis that the world has not witnessed in modern history. One of its most important features is uncertainty and difficulty in knowing and anticipating its extent in light of daily developments that require governments to deal with them with vigilance, and the ability to respond quickly in the interest of the public, while protecting citizens and residents' needs and services."