New tax regime to boost Aramco IPO value

Under the new regime, hydrocarbon companies in Saudi Arabia will be taxed depending on their capital, according to a royal decree issued on Monday.
Updated 28 March 2017
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New tax regime to boost Aramco IPO value

JEDDAH: Saudi Arabia approved Monday a new tax regime for oil and natural gas producers in the Kingdom, which will boost Saudi Aramco’s valuation as it plans to sell shares in its initial public offering (IPO) next year.
Under the new regime, hydrocarbon companies in Saudi Arabia will be taxed depending on their capital, according to a royal decree issued Monday and posted on the website of the Saudi Press Agency (SPA).
Companies with capital of more than SR375 billion ($100 billion) will pay 50 percent income tax. Those with capital between SR300 billion and SR375 billion will pay 65 percent tax.
Companies with capital between SR225 billion and SR300 billion will pay 75 percent, and those with capital below SR225 billion 85 percent.
Saudi Aramco will see its income tax rate fall from 85 percent to 50 percent, CEO Amin Nasser said Monday, adding that the new rates will put the company in line with international benchmarks. The new rate is effective retroactively from Jan. 1.
Saudi Arabia aims to sell as much as 5 percent of the company late next year in an IPO. With the drop in its tax rates, future investors who are interested in buying Saudi Aramco shares will see more cash flow.
This will be positive news for the company’s valuation, which the government estimates to be at least $2 trillion.
“The 50 percent tax rate will be very lucrative to investors who should be gearing up for its privatization,” said John Sfakianakis, director of economic research at the Gulf Research Center Foundation in Riyadh.
“This is one of many steps that will begin a process of investor-friendly initiatives that will help in wetting appetites,” he added.
“The royal decree falls in line with an earlier promise that Saudi Arabia will reduce the overall tax rate paid by its national oil company to make its 2018 IPO — potentially one of the largest in history — more appealing to investors.”
But the fall in tax rates does not mean the government will lose income. “Any reduction in tax revenues arising from this Royal Order is replaced by stable dividend payments and other sources of revenue from hydrocarbon producers to the government,” Energy Minister and Aramco Chairman Khalid Al-Falih said in a statement.
“It is very important to make it clear that the hydrocarbon resources of Saudi Arabia remain sovereign.”
Saudi Aramco welcomed the introduction of the new tax regime as another positive step in diversifying the Kingdom’s economy.
“We thank… King Salman… for the Royal Order,” said Nasser. “The new tax rate will bring Saudi Aramco in line with international benchmarks.”
Nasser said the company will continue to make a critical contribution to the diversification and growth of the Saudi economy in line with Vision 2030.


Major projects, investments worth over $685bn unveiled on Saudi National Day

A photo taken on July 5, 2018, shows Bader al-Ajmi, 38,(L) owner of "One Way Burger" serving customers from his truck at a main street in the capital Riyadh. (AFP)
Updated 22 September 2018
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Major projects, investments worth over $685bn unveiled on Saudi National Day

  • The private sector’s contribution to the GDP at constant prices doubled to around SR1236.6 million in 2017

JEDDAH: A major economic boost in the form of 10 major projects and investments exceeding SR685 billion ($183 billion) were unveiled as celebrations of the 88th Saudi National Day got under way.
The Council of Saudi Chambers released a report focusing on great economic achievements in 2017.
These projects reflect the Kingdom’s vision under the wise leadership of King Salman and that of Crown Prince Mohammed bin Salman to provide a brighter future through diversifying sources of national income, tackling environmental challenges and increasing investment and prosperity.
The report summarized the most important events and economic developments in the Kingdom over the past year. These include the lifting of the ban on women driving in June, and the establishment of the General Authority for Cyber Security, in addition to the numerous royal decrees providing financial support to Saudis.
It also noted the important decisions related to the Saudi business sector. These include the launch of a private sector incentive program with a value of SR72 billion, the privatization of 10 government sectors and the establishment of the General Authority for Real Estate. The private sector is still showing a strong performance as an efficient partner in the inclusive development process and in the achievement of the Kingdom’s 2030 Vision, the report noted, as it contributes 39 percent to the Saudi gross domestic product (GDP).
The private sector’s contribution to the GDP at constant prices doubled to around SR1236.6 million in 2017. There has been increased contribution to GDP from non-oil private sector streams.
The private sector also witnessed an increase in the number of workers, in its capital, in the number of shares on the Saudi market, in the cumulative number of establishments operating in the Kingdom, and in non-oil exports.
Continued growth of the private sector was attributed by the report to the Saudi government’s support. This support comes through initiatives such as the removal of obstacles to financial development, improvements to the working environment and policies adopted to boost investment.
It also reviewed the private sector’s efforts to support diversification of the economy and lower unemployment rates.
The importance of the measures taken to prioritize the employment of qualified Saudi workers over the employment of expatriates in the private sector were stressed, as well as the sector’s role in providing education and health services.