Saudi Arabia is going to triple rate of the value added tax (VAT) it imposes on goods and services. VAT will increase from 5 per cent to 15 per cent on 1st of July. The tax was introduced in Saudi Arabia for first time in 2018. Government authorities say this drastic measure is necessary to curb effects of coronavirus pandemic on economy. The cut is also part of wider austerity measures to help the economy. Finances of oil-rich nation have been badly hit as pandemic has seen oil prices and demand for oil plummet. Analysts are reporting that oil revenues this year have fallen by almost quarter when compared to same period last year.
Another measure finance ministry has taken in bid to shore up economy is the suspension of cost of living allowance. This is payment of about $256 per month to state employees. It was introduced to help offset rising prices and more expensive petrol at pump. Saudi's Finance Minister said: "These measures are painful but necessary to maintain financial and economic stability over medium to long term...and to overcome unprecedented coronavirus crisis with the least damage possible." Gulf expert said: "The move will impact consumption and could also lower expected revenues. These are pro-austerity and pro-revenue moves rather than pro-growth ones."