Saudi households to be SR239-a-month better off after reforms, report finds

Cars pictured in downtown Riyadh. Recently introduced grants are boosting average Saudi household income but expatriates are being hit. (Reuters)
Updated 12 February 2018
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Saudi households to be SR239-a-month better off after reforms, report finds

LONDON: Saudi households will be SR239-a-month ($63.64) better off on average following the introduction of recently announced government grants, a report found.
It represents a 1.5 percent increase in average household income, Bank of America Merrill Lynch (BoAML) said.
“The combination of royal grants and household allowance disbursements more than fully shelter Saudi households from the cost of fiscal reform costs,” said chief regional economist Jean-Michel Saliba in the report. “Further out, Saudization efforts and targeted stimulus should support consumption.”
Saudi Arabia recently introduced financial grants aimed at easing the impact of removing subsidies and other ongoing economic reforms under the Vision 2030 strategy. That aims to reduce the country’s reliance on oil by developing new industries which will increasingly rely on Saudi citizens rather than expatriates.
There are about 3 million households in the Kingdom eligible to receive the household allowance known as the ‘Citizens Account’ which was announced in December 2017.
That equates to about 10.6 million people — or more than half of the population.
The bank estimates that almost 67 percent of eligible households receive the full amount of SR900 per month.
The smallest partial coverage payment is SR300 per month.
A massive push to employ more Saudis in the Kingdom is unlikely to trigger the mass departure of expatriates, BoAML said.
It found that despite the introduction of expatriate dependent fees and expatriate levies, many foreigners would still be better off financially than at home.
The reform of the Nitaqat Saudization scheme in mid-December could demand hiring as many as 25,000 Saudis just to maintain compliance levels, the report found.
That could be a boon for overall consumption in the Kingdom but may dent corporate profits because it could raise costs as companies pay more for their staff, BoAML said.
The bank also warned that Saudization should be handled carefully because the process risks prolonging labor scarcity in some sectors of the economy.
The government recently announced limiting 12 retail sector job types to Saudi nationals — however the likely impact on expatriates currently holding jobs in those sectors is difficult to determine because of a lack of job data in those areas.
But BoAML notes that there are some 304,865 expatriates working in sales roles of various type.
Employing more citizens in economically productive jobs is a key plank of Vision 2030. Some employers have struggled to fill certain roles because of a lack of vocational skills in particular areas of demand and shortages of graduates with the relevant degrees in others.


Jordanian cabinet approves new IMF-guided tax law to boost finances

Updated 21 May 2018
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Jordanian cabinet approves new IMF-guided tax law to boost finances

AMMAN: Jordan’s cabinet on Monday approved major IMF-guided proposals that aim to double the income tax base, as a key part of reforms to boost the finances of a debt-burdened economy hit by regional conflict.
“When only 4 percent of Jordanians pay (personal) income tax, this may not be the right thing,” Finance Minister Omar Malhas said in remarks after the cabinet meeting, adding the goal was to push that to eight percent. The draft legislation was submitted to parliament.
The IMF’s three-year Extended Fund Facility program aims to generate more state revenue to gradually bring down public debt to 77 percent of GDP in 2021, from a record 95 percent.
A few months ago Jordan raised levies on hundreds of food and consumer items by unifying general sales tax (GST) to 16 percent — removing exemptions on many basic goods.
In January subsidies on bread were ended, doubling some prices in a country with rising unemployment and poverty among its eight million people.
The income tax move and the GST reforms will bring an estimated 840 million dinars ($1.2 billion) in extra annual tax revenue that will help reduce chronic budget shortfalls normally covered by foreign aid, officials say.
Corporate income tax on banks, financial institutions and insurance companies will be pushed to 40 percent from 30 percent. Taxes on Jordan’s phosphate and potash mining industry will be raised to 30 percent from 24.
The government argues the reforms will reduce social disparities by progressively taxing high earners while leaving low-paid public sector employees largely untouched.
“This is a fair tax law not an unfair one,” said Malhas, who shrugged off criticism the law is lenient on many businesses connected to politicians whose transactions are not subject to tax scrutiny.
Husam Abu Ali, the head of the Income and Sales Tax Department, said a proposed IMF-recommended Financial Crime Investigations Unit will stiffen penalties for tax evaders. Critics say it will not tackle pervasive corruption in state institutions.
Abu Ali said the government could be losing hundreds of millions of dollars through tax evasion, which is as high as 80 percent in some companies.
The amendments lower the income tax threshold and raise tax rates. Unions said the government was caving in to IMF demands and squeezing more from the same taxpayers.
“It is penalizing a group that has long paid what it owes the state,” the unions syndicate said in a statement.
“It imposes injustice on employees whose salaries have barely coped with price hikes rising madly in recent years.”