Friday, January 8, 2016

INSIDE SAUDI ARABIA Low Oil Price Impact: VAT Coming

From an interview between Economist and the very powerful Saudi, Muhammad bin Salman (30), Saudi Arabia’s deputy crown prince, the country's defense minister and son of King Salman (80).
How will you increase non-oil revenues? Will you introduce VAT? Will you introduce income taxes?
There are going to be no income taxes, and no wealth taxes. We’re talking about taxes or fees that are supported by the citizen, including the VAT and the sin tax. They will create good revenues, but not the only revenues. We have many opportunities in mining, we have more than 6% of world reserves of uranium, we have many unutilised assets. We have four million square metres in Mecca alone of unutilised state-owned lands. The value in the market is very high; we have many assets that could be transformed into investment assets. We believe we could reach a point of non-oil revenues reaching $100 billion over the next five years. 
When will you introduce the VAT?
We’ll try to do that by the end of 2016 or 2017, and we’ll try to expedite it.
Sounds like Rand Paul and Ted Cruz, two other big fans of the evil VAT.

More from Economist on the plan's of the Crown Prince:
He seems determined to use the collapse in the price of oil, from $115 a barrel in 2014 to below $35, to enact radical economic reforms. This begins with fiscal retrenchment. Even after initial budget cuts last year, Saudi Arabia recorded a whopping budget deficit of 15% of GDP. Its pile of foreign reserves has fallen by $100 billion, to $650 billion. Even with its minimal debt of 5% of GDP, Saudi Arabia’s public finances are unsustainable for more than a few years...
Under his “Transformation Plan 2020”, set for publication by the end of the month, the prince wants to develop alternatives to oil and drastically to cut the public payroll, which acts as a form of unemployment benefit. To do so he wants to create jobs for a workforce that will double by 2030. Ministers speak of doubling private education to cover 30% of students, establishing charter schools and transforming public health care into an insurance-based system with expanded private provision. In addition to Aramco, the prince wants to sell stakes in state assets from telecoms to power stations and the national airline. The government is to sell land to developers, such as the 4m square metres it owns around Mecca, the most expensive real estate in the world. The prince sees huge promise in developing Islamic tourism to the holy sites; he hopes to boost the 18m annual visitors to 35m-45m in five years.

Sceptics abound. Reform has long been talked about but never implemented. Prince Muhammad’s ministers are astute, have PhDs from Western universities and speak the jargon of key performance indicators, but much of the government is deadweight. Even the unemployment figures are subject to doubt. “Few bits of the bureaucracy actually function at a high level,” says a Western diplomat. Even senior advisers question the kingdom’s capacity to find and absorb the trillions of dollars on which the plan is predicated.

In Jeddah, the commercial capital on the Red Sea, some businessmen remain sceptical, and speak more of exporting their wealth than investing it in the country. There is also suspicion of hidden motives. With each new elderly monarch, they say, favoured sons have indulged in self-aggrandisement, leaving courtiers to disguise their acquisitions as privatisations and economic reforms. Media reports of Prince Muhammad’s lavish parties in the Maldives and the crown prince’s house-hunting for a Sardinian villa worth half a billion euros are fodder for social media, of which Saudis are keen users.

As the man who ultimately controls the Public Investment Fund, the destination for many assets to be sold, and who has taken direct oversight of Aramco, the prince is already the subject of some muttering. What is true is that, for all his talk of transparency, his government continues to treat royal and state expenses as one and same; the royal component is a state secret.


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