Saudi Arabia could review VAT increase after pandemic ends - minister

DUBAI (Reuters) - Saudi Arabia’s acting information minister on Thursday said the kingdom could review its VAT increase after the novel coronavirus pandemic ends, a move which may spur economic recovery after the tax increase boosted inflation.

FILE PHOTO: Saudi women push the shopping cart outside a supermarket during shopping before the expected increase of VAT to 15%, in Riyadh, Saudi Arabia June 29, 2020. REUTERS/Ahmed Yosri

Saudi Arabia tripled value-added tax to 15% in July to offset the impact of lower oil revenue on state finances.

The hike, as well as a suspension of a cost of living allowance, shocked citizens and businesses expecting more support from the government, while economists said it would dampen growth.

“This decision is like any other decision, it can be revised God willing when this crisis is over,” Majid bin Abdullah al-Qasabi told reporters at a news conference, referring to the global pandemic.

The decision to triple VAT earlier this year was a “painful” one, Qasabi told reporters in a news conference.

“As his highness the Crown Prince said in his speech a few days ago, the decision to increase the VAT was a very painful decision.”

The International Monetary Fund, which forecasts the Saudi economy could shrink by 5.4% this year, said in July it had not recommended the decision to triple VAT and cautioned against increasing consumption taxes in the Middle East amid the coronavirus-driven downturn.

The Fund had however recommended last year that Saudi Arabia double its VAT, advice that the kingdom did not follow at the time.

The world’s largest oil exporter posted a budget deficit of nearly $11 billion in the third quarter this year, more than half its deficit in the previous quarter, as a spike in non-oil revenues offset a continued decline in oil income.

That was partly thanks to tax increases and pent-up consumer demand after coronavirus-related lockdowns.

Inflation in the kingdom jumped 6.1% in July, up from a 0.5% inflation rate in June, and has remained at around 6% since.

Reporting by Yousef Saba in Dubai; writing by Davide Barbuscia and Raya Jalabi; Editing by Toby Chopra and Bernadette Baum