Those living in the Middle East have always revelled in their tax-free living. The Saudi royal family have made it no secret that they have used the country’s immense wealth (from oil) to lavish benefits on its citizens. From free education and healthcare, to generous energy subsidies and well-paid government jobs, life in the Middle East is championed. However, this perfect bubble will soon be a distant memory, as value-added tax is forced upon Saudi Arabia as oil revenues nose-dive.
Back in June 2016, the Cabinet agreed that a 5% levy on certain goods would be implemented during a meeting with the Gulf Cooperation Council. The IMF-backed tax has come as a result of the collapse in crude oil prices over the past three years, within which Middle Eastern countries have been trying to search for new revenue opportunities.
Before the downfall in prices, around 85% of Saudi Arabia’s export earnings came from crude oil. It is the world’s largest oil exporter and the largest economy in the Arab region. So why has the industry seen a downturn? Essentially, the issue boils downs to supply and demand. Over the past few years, the USA has doubled its domestic production of oil, resulting in a decrease in import. Saudi Arabia once used to sell oil to the USA but are now, instead, having to drop prices to compete in the Asian market against the likes of Nigeria and Algeria. Canada, Iraq, and Russia have all been pumping oil at record volumes too.
Alongside the 5% tax which will initially affect tobacco and energy drinks during 2017, Saudi Arabia aims to balance its budget by 2020. Last year saw a deficit of $97 billion for the Gulf country and plans to broaden its investment base and boost non-oil income is said to be underway.
The official Saudi Press Agency stated that the cabinet “decided to approve the unified agreement for value-added tax” to be implemented throughout the Gulf Cooperation Council. “A royal decree has been prepared,” they continued.
A barrel of Saudi oil cost $100 in June 2014, with prices dwindling below $30 today. The low prices have seen many working in the industry made redundant and desperate for employment. Furthermore, those under 30 who were working towards a career in the oil industry have had to rethink career paths.
One Saudi women, who recently graduated with a Ph.D. in a medicine-related field commented: “My parents had great opportunities. They provided well and we had a comfortable life, so I always thought it would be the same for us.” However, despite being educated to an exceptional level and benefiting from being bilingual, she is struggling to secure employment.