The impact of VAT and fuel price rises in Saudi Arabia will be felt most strongly by expatriate workers, according to a new report by Capital Economics.
While Saudi citizens will be compensated with increased salaries and, for civil servants and military servicemen, one-off bonuses, there are no such mitigating measures for non-nationals.
Indeed, there is an increased “expat levy” for employment in Saudi Arabia, which is now SAR400 per month, and increased fees for their dependents, says the report’s author Jason Tuvey.
The price rises and VAT will come hand in hand with inflation, which could rise by more than six percent in 2018, the report suggests. Energy prices will be the main drivers of this, specifically petrol and electricity. The price of fuel at the pump has risen by up to 127 percent, while electricity tariffs for the low-end consumption of most Saudi households have increased by 260 percent. VAT on its own will add 2.5 percent to the inflation rate.
“Gasoline prices in the Kingdom are closing in on those in the US and therefore seem to be much closer to market levels. The upshot is that further price hikes are likely to be less aggressive,” says Tuvey said.
In 2017, the inflation rate in Saudi Arabia hovered around zero, helped by the stagnant oil prices and its impact on the economy as a whole. Economists believe that it will fall again in 2019.
“It is worth pointing out that the fiscal measures are likely to have varying effects on households. For example, households of Saudi nationals – particularly those working in the public sector – are likely to see a net gain,” Tuvey added.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.