Saudi 5-year plan to include privatisation, taxes

Saudi Arabia is expected to sell some of its public establishments to the private sector and introduce value added tax (VAT) as part of reforms in the next five-years to maximize non-oil revenue, according to a local study.

The 2016-2020 National Transformation Plan (NTP) will also measures to boost “religious tourism” and lifting of energy subsidies, which cost the government nearly $61 billion (Dh225 billion) in 2015, said the study by the Riyadh-based Jadwa Investment.

The study, sent to Emirates 24/7, said it expects the NTP to introduce more detailed initiatives that could help boost non-oil revenue and improve public sector efficiency.

“The NTP will likely follow the budget and include initiatives on diversifying government revenue, improving public sector labor productivity, as well as introducing specific numerical targets to cap fiscal spending and debt accumulation in the next five years,” Jadwa said in the 15-page study on the 2016 state budget.

“Also, the NTP will likely include privatization, energy subsidy reform procedures, the imposition of a value-added tax, and revenue maximization of religious tourism, all of which would also contribute to significantly raising non-oil revenue for the government in the short-to-medium term.

Saudi Arabia, the world’s largest oil exporter, on Monday released its 2016 budget, projecting spending at SR840 billion (Dh840 billion) and revenue at SR513 billion (Dh513 billion), creating a deficit of SR326 billion (Dh326 billion).

It was the first budget to be issued by King Salman bin Abdul Aziz and it forecasts one of largest shortfalls in the Kingdom’s history.

 “Within the anticipated NTP, we think that the government will introduce an initiative to improve public sector workers’ efficiency and productivity,” Jadwa said.

“If implemented effectively, the initiative should lead to potentially higher non-oil revenues per Riyal spent on wages, and reduce worker redundancy costs. This should ultimately contribute to an improvement in the government’s non-oil fiscal balance.”

The study said implicit energy subsidies have a high opportunity cost for the government as feedstock can be sold at much higher prices in the world market. Subsidy reform would therefore enable the government to maximize its oil revenue as well as encourage more efficient energy consumption by the private sector, it said.

“Further, according to some sources citing officials, subsidies have had little benefit for lower and middle income households, with the majority benefit going to higher income groups. Additionally, subsidy reform always contributes to a net welfare gain to society, with financial gains to the government exceeding the loss to consumers….looking ahead, we think that any reform would be gradual over the next five years.”

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