Saudi Arabia is going to triple the 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 the 1st of July. The tax was introduced in Saudi Arabia for the first time in 2018. Government authorities say this drastic measure is necessary to curb the effects of the coronavirus pandemic on the economy. The cut is also part of wider austerity measures to help the economy. Finances of the oil-rich nation have been badly hit as the pandemic has seen oil prices and demand for oil plummet. Analysts are reporting that oil revenues this year have fallen by almost a quarter when compared to the same period last year.
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Another measure the finance ministry has taken in a bid to shore up the economy is the suspension of a cost of living allowance. This is a payment of about $256 per month to state employees. It was introduced to help offset rising prices and more expensive petrol at the pump. Saudi's Finance Minister said: "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." A Gulf expert said: "The move will impact consumption and could also lower the expected revenues. These are pro-austerity and pro-revenue moves rather than pro-growth ones."