‘Saudi austerity drive to make pilgrimage costly’

Saudi government triples VAT rate suspends allowance for employees amid plunge in oil prices and Covid-19 lockdown


Anadolu Agency May 12, 2020
The measures also included suspending the cost-of-living allowance to address the negative impact of the coronavirus crisis. PHOTO: AA

ANKARA: With Saudi Arabia announcing a threefold rise in the value-added tax (VAT), an expert believes the move may also make it more expensive for people to take the Umrah and Hajj pilgrimages.

“The Saudi economy has come under a double shock as a result of the collapse of global crude oil prices and due to the measures taken to curb the coronavirus outbreak,” Mohamed Ibrahim, Istanbul-based economic expert, told Anadolu Agency.

The measures also included suspending the cost-of-living allowance to address the negative impact of the coronavirus crisis.

Ibrahim said the measures will raise the costs of many items including making Umrah and Hajj expensive.

“Saudi authorities may increase the Hajj and Umrah fees to help alleviate the severity of the country's budget deficit,” he added.

According to official figures, pilgrimages bring revenue of $12 billion to the Saudi kingdom every year. The religious rituals contribute to 20 per cent of the non-oil GDP of the country, and around 7 per cent of the total GDP.

Earlier, quoting Saudi Finance Minister Mohammed al-Jadaan, the official SPA news agency said the VAT rates will stand increased from 5 per cent -15 per cent as of July.

“The Saudi budget banks heavily on oil revenues, as the oil prices collapse greatly affected public revenues and led to a high budget deficit," said Ibrahim.

He said that according to first-quarter data of 2020, the deficit has reached to 34.1 billion riyals ($9.1 billion).

He added that Riyadh has been exploring alternatives to compensate for the decline in oil revenues.

“These alternatives included austerity measures taken to reduce public expenditures, as well as the tendency to increase public revenues by raising the VAT along with halting to pay the cost of living allowance,” he noted.

The Saudi minister described the measures as "important to shield the kingdom's economy to overcome the unprecedented global coronavirus pandemic and its financial and economic repercussions with the least damage possible".

Al-Jadaan said the pandemic has caused an unprecedented slump in oil demand, the decline in economic activity, and a rise in expenses needed to stem the spread of coronavirus.

According to the US-based Johns Hopkins Coronavirus Resource Centre, Saudi Arabia has so far reported 39,048 Covid-19 cases with 246 deaths.

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