Riyadh Suspends COLA, Triples VAT to Cover Hit on Income
Saudi Arabia will stop paying a cost-of-living adjustment to government workers beginning on June 1, and triple its value added tax from 5% to 15% starting on July 1, to cover losses to the treasury due to historically low oil prices and the coronavirus pandemic. “These measures are painful but necessary to maintain financial and economic stability over the medium to long term… and to overcome the unprecedented coronavirus crisis with the least damage possible,” Finance Minister Mohammed al-Jadaan said on Monday in a statement announcing the moves. The losses led to a $9 billion government deficit for the first quarter of 2020. The monthly cost of living adjustment of 1,000 riyals, or about $270, was instituted in 2018 for the kingdom’s 1.5 million state employees. The Reuters news agency quoted a finance professional as saying the new VAT rate could bring in an estimated $25 billion a year. According to Jadaan, Saudi Arabia will also cut back on certain aspects of its Vision 2030 program, which is designed to wean the country away from an income based solely on petroleum.