Raising VAT rate can help Saudi Arabia meet fiscal targets: IMF

Raising the rate of value-added tax (VAT) can help Saudi Arabia boost its revenues and achieve fiscal targets, the International Monetary Fund (IMF) Mission Chief for Saudi Arabia and Assistant Director in the Middle East Department Tim Callen told Argaam.

“In our view, Saudi Arabia will need to implement further measures to achieve its target of balancing the budget. Important reforms have already been undertaken, but more are needed. The implementation of the VAT has been very successful and we believe that raising the VAT rate would be one way of increasing government revenues to achieve the fiscal targets,” he said.

Calling the five percent VAT rate as “very low” in comparison to most other countries, Callen suggested that any increase will need to be planned ahead of time.

“It does not need to be done immediately and would need agreement with other GCC countries given the GCC VAT agreement. If and when it is done is the decision of the government.”

Callen said the VAT has helped Saudi Arabia strengthen its budget position by providing a new and important source of revenue other than from the proceeds of the sale of oil.

Besides, the introduction of VAT has helped strengthen tax administration in other areas and enabled the [Saudi] tax authority to better ensure companies are paying other taxes, he added.

In a recent report, the IMF said higher public spending will push Saudi Arabia’s budget deficit to 7 percent of gross domestic product in 2019, compared to government’s budget deficit forecast of 4.2 per cent of GDP.

However, the real non-oil growth is expected to strengthen to 2.9 percent this year, boosting overall economic growth to 1.9 percent on the back of rising oil prices, the report said.

Write to Parag Deulgaonkar at parag.d@argaamplus.com