Saudi Arabia considers income tax for foreign residents

Saudi Arabia considers income tax for foreign residents Saudi Arabia’s finance minister confirmed that the kingdom was considering imposing income tax on foreign residents as it seeks to raise non-oil revenues and cut spending to fund its $72bn plan to diversify the economy. Riyadh, which is scrambling to raise funds needed for wide-ranging reforms from fiscal and investment policy to social initiatives, is taking the unprecedented step of tapping global bond markets and reprioritising domestic spending. Income tax on the one-third of residents who are non-Saudis would raise a significant amount of non-oil revenue for the government. But it could also make luring expatriates to the conservative kingdom more difficult. Like other Gulf states, Saudi’s income tax-free status is key to attracting foreigners. “The allure of Gulf countries for many expatriates is how much they can save, not spend, and how much they can remit back to their countries,” said Talal Malik, a Saudi-based consultant. “If income tax is applied, there will increasingly be expectations of greater standards of living.” A similar idea was floated during a period of low oil prices in the 1980s. But foreigners were so outraged by the potential impact that some went on strike, including military contractors, grounding air force planes until the authorities backed down. The National Transformation Plan outlining the government’s policies to overhaul the oil-dependent economy, released on Sunday, referred to plans to raise income tax on foreigners. But an official then denied the proposal at a press conference accompanying the NTP’s release. Ibrahim al-Assaf, the Saudi finance minister, sought to clarify confusion over the tax issue at a news conference in Jeddah on Tuesday, saying it was “a proposal”. “Nothing has been approved yet and it will be examined,” he added. Saudi Arabia, whose population of about 30m is far larger than other Gulf states, has been forced to speed up the pace of proposed fiscal and economic changes as a prolonged period of low oil prices has sparked two years of deep budget deficits. The consequent fall in government spending has hit the economy, prompting workers to strike for late payment of wages after departments failed to pay contractors and suppliers. Economic growth is forecast to slow to 1.2 per cent of gross domestic product this year, according to the IMF.