Expatriate tax likely to have mixed impact: Argaam survey

Saudi Arabia’s decision to impose taxes on the dependents and family members of expatriate workers in the Kingdom will increase state revenue and encourage Saudization, which would positively affect the economy, a survey of economists by Argaam showed.

However, some economists were concerned that the fees will reduce local spending, increase remittance outflows and thereby hurt several sectors.

On July 1, the Kingdom imposed a monthly fee of SAR 100 per dependent for expatriates. The fee is set to increase gradually by SAR 100 every year until 2020, amounting to SAR 400 per dependent per month in 2020.

“The decision will diversify the government’s revenue streams and compensate for some of the services it provides for free, especially to expatriates,” prominent local economist Fadl Al Buainain told Argaam, adding that it would encourage Saudization and help fill positions that are currently not occupied by locals.

The move will also lead to an increase in the cost of hiring expatriates which will have an impact on the inflation rates and prices, Buainain said.

He said some sectors--especially industrial and SME--should be exempt from the tax as they depend heavily on expatriates and would be adversely impacted if the tax led to mass resignations.

Hamad Al Tuwaijri, professor of economics at King Saud University, said: “While expatriate spending is expected to decrease, it will not have a significant impact on the prices, as they are not the biggest spenders, compared to citizens.”

On the other hand as the number of expatriates decline as families return to their home countries, housing prices should see a drop in their neighborhoods, Al Tuwaijri added.

Economic analyst Lahem Al-Nasser told Argaam that he expects most expatriate to send their families home, which would affect the retail market and increase outward remittances.

“If the objective behind the expatriate fees is to boost Saudization, we know that dependents are not allowed regular employment, so they do not affect the labor market,” he said.