Thousands of well-paid expats in Saudi Arabia may have to pay income tax in the future as the government mulls ways of raising money to plug a massive budget deficit. Taxing expats incomes is one proposal before policy makers. Around a third of Saudi Arabia’s population of 30 million are expats.
Most of the labour force are from countries such as India and Bangladesh, but the nation has long relied on a cadre of skilled professionals from North America and Europe to sit in key roles. The lure of working in the Middle East country with strict religious laws has been the reward of handsome tax-free salaries.
Leak suggests expat tax is on the way
Finance minister Ibrahim Alassaf has tried to play down the move by announcing income tax is under consideration for non-Saudis only and that no decision to introduce the tax has been made.
“Citizens will have no tax. As for a non-resident tax, this is only a proposal. Nothing is approved yet and the details are still being examined,” he said.
However, official documents leaked to the Saudi press suggest the government has already earmarked US$40 million to develop an income tax program for non-residents.
The measure is part of a national transformation plan published by the government laying out policy objectives up to 2030.
Falling oil prices have hit national revenues, with the price a barrel dropping from $100 to $28 only to rebound to $50 now. A budget deficit of 14% was posted for this year, compared with 16% last year.
Cap on expat numbers
Saudi Arabia is not the only Gulf state with a financial hole as a result of the slump in oil prices. The Gulf Confederation Council, which includes Saudi Arabia, is proposing to impose a blanket 5% value added tax.
Most governments in the GCC are also considering cutting water, fuel and utility subsidies that will push up the cost of living.
Kuwait, another GCC member, is planning a cap on the number of expat workers, although Alassaf says this is not a goal for Saudi Arabia.
Several Gulf States, including Saudi Arabia, are also looking to fill traditional expat posts with local workers to reduce their reliance on foreigners.