Saudi Arabia cuts taxes on oil firms ahead of Aramco sale

New set of income tax rates ranges from 50% to 85% depending on firms’ investments

RIYADH: Saudi Arabia on Monday cut taxes on oil companies in a major move that could attract investments in its energy giant Aramco, expected to be offered to investors in 2018.

King Salman decreed a new set of income tax rates on oil companies working in the kingdom, ranging from 50% to 85% depending on the firms’ investments, after it was 85% across the board.



The royal decree published Monday said companies investing more than 375 billion riyals ($100 billion) will be subject to a 50% tax rate.

“Saudi Aramco’s tax rate is reduced from 85% to 50%, bringing it in line with international benchmarks,” the government-owned oil giant said on its Twitter account following the decree.

Saudi Arabia plans to sell 5% of Aramco next year, as part of efforts to build up a large sovereign wealth fund. The sale falls within the kingdom’s strategy to diversify its oil-dependent economy away from hydrocarbons.

“The royal decree concerning taxes is in the interest of the kingdom, its citizens and future generations,” said Energy Minister Khalid al-Falih, whose country is the world’s biggest oil exporter.

Saudi Aramco Chief Amin Nasser said the royal order “is positive for the kingdom’s economic diversification,” and in line with the “Vision 2030” for economic reforms led by the king’s son, Deputy Crown Prince Mohammed bin Salman.

The kingdom has intensified economic reform efforts after oil prices plunged last year below $40 per barrel from above $100 in 2014.

The government made unprecedented cuts to fuel and utilities subsidies in a country long-accustomed to some of the cheapest petrol prices in the world.

The budget deficit last year amounted to $79 billion, down from the record deficit of $97 billion registered in 2015.



The energy minister insisted the country’s oil wealth would remain sovereign despite the sale of Aramco shares, and that a drop in tax revenues would be compensated by investment returns.

Finance Minister Mohammed al-Jadaan also gave assurances that the tax cuts would “not have any negative impact on the state’s ability to provide services”.

Published in The Express Tribune, March 28^th, 2017.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.