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.


Shoura Council: We are the ears of Saudi society

Updated 54 min 11 sec ago
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Shoura Council: We are the ears of Saudi society

  • The Shoura Council that the King is addressing today has a vital role to play in government
  • Female Shoura Council members have played a major role in raising their voices over many issues concerning social development in Saudi Arabia

JEDDAH: When King Salman gives his annual speech that will open the third year of the Shoura Council’s seventh session today, it will set the tone for what lies ahead for the Kingdom, laying the groundwork for the consultative assembly to help to move the country forward.
“The King’s speech in the Shoura Council lays the road map to achieving Vision 2030,” said Lina Almaeena, one of its 30 female members. Women make up of 20 percent of the council, the same percentage of women who now hold seats in the US Congress.
While only midway through its seventh session, the roots of the Shoura Council date back to before Saudi Arabia’s founding. After entering the city of Makkah in 1924, King Abdul Aziz Al-Saud entrusted the council with drafting the basic laws for the administration of what was to become the future unified Kingdom.
In 1928, amendments were made as public interest grew. A new law consisting of 24 articles, which included the permanent appointment of a vice-president by the King, was issued to facilitate the council’s work.
In 1953, the council’s jurisdictions were distributed between the Council of Ministers and other government entities, reducing the Shoura Council’s power, although it continued to hold sessions until its mandate was once again broadened this century.
Its current format consists of a Speaker and 150 council members, among them scholars, educators, specialists and prominent members of society with expertise in their respective fields, chosen by the King and serving a four-year term.
The council convenes its sessions in the capital of Riyadh, as well as in other locations in the Kingdom as the King deems appropriate. Known as Majlis Al-Shoura inside the Kingdom, its basic function is to draft and issue laws approved by the King, as the cabinet cannot pass or enforce laws, a power reserved for the King to this day.
The Shoura can be defined as an exchange of opinions, and so another of its functions is to express views on matters of public interest and investigate these issues with people of authority and expertise, hence the 14 specialized committees that cover several aspects of social and governmental entities. From education, to foreign affairs, members assigned to committees review proposed draft laws prior to submitting them to the King, as they are able to exercise power within its jurisdiction and seek expertise from non-Majlis members. All requested documents and data in possession of government ministries and agencies must go through a request process from the Speaker to facilitate the Shoura Council committees’ work.
Female members are a fairly recent phenomenon. In September 2011, the late King Abdullah stated that women would become members of the council. In 2013, two royal decrees reconstituted the council, mandating that women should always hold at least a fifth of its 150 seats and appointed the first group of 30 female Shoura members.
Five years on, female Shoura Council members have played a major role in raising their voices over many issues concerning social development in Saudi Arabia. “It’s a golden age for Saudis and, as women, we’ve come a long way,” said Almaeena. “We’re living an era of historical change, and we’re making up for lost time.”
As part of their roles, members of the council have the right to discuss general plans for economic and social development, particularly now with the Vision 2030 blueprint. Annual reports forwarded by ministries and governmental institutes, international treaties and concessions are also within the council members’ remit, to discuss and make suggestions that are deemed appropriate.
“Many positive changes have taken place in the past few years, and the Shoura Council’s role has always put social developments first and foremost,” said Dr. Sami Zaidan, a council member of two terms. “The appointment of women diversified and expanded the discussions and has added value.”
Major achievements were chalked up in this term’s second year. Many of the draft proposals discussed received approval votes. On Nov. 8, a proposal with 39 articles to protect informants from attacks, threats and material harm was approved by the majority of the council. The draft law, suggested by the Ministry of Interior and the Ministry of Economy and Planning, would provide whistle-blowers with protection.
In May, the Shoura Council also approved legislation criminalizing sexual harassment in the Kingdom. The Cabinet, chaired by King Salman, backed the legislation, which required a royal decree to become law. Under it, perpetrators may face a jail sentence of up to five years and a SR 300,000 fine.
Draft regulations must go through a two-step process. The first, a chairman of a committee reads a draft of a proposal on the floor, and council members vote on referring the proposal to the designated committee. If members agree to the referral, each article is discussed thoroughly, studies are conducted on the aspects of the proposal, and after completing all the necessary checks, it reaches the second stage. The council then discusses the committee’s recommendations and a vote is set for each article proposed in an earlier session by the committee’s chairman.
Other proposals on the discussion table for this session include one that recognizes the importance of voluntary work in the community, in compliance with Vision 2030, which talks about one million volunteers in the Kingdom by 2030. The council has also asked the General Sports Authority to speed up the development of sports cities and to diversify its functions in different parts of the Kingdom to help the organizational level of women’s sports become an independent agency affiliated to the GSA chairman.
The council has also discussed a recommendation for women to hold leadership positions in Saudi Arabia’s diplomatic missions abroad, from a report by the council’s Foreign Affairs Committee. With approximately 130 women working at the Ministry of Foreign Affairs, the report recommended the necessity of an appointment as an affirmation that Saudi women are able to take over leadership positions as ministers, ambassadors and Saudi representatives in international forums.
Almaeena pointed out that Shoura Council members are the ears of society, playing an important role in relaying the public’s message to the designated committees. “The Shoura Council’s doors are always open, although not many know this,” she said. “The public is always welcome and can attend sessions, scheduling ahead of time. The doors to the council have always been and will always be open to all.”