Saudi Arabia raised the value-added tax 3 times to 15%, as it seeks to support the finances of the country, which has been severely affected by a drop in oil prices, while economists say the move may lead to a boom in inflation and curb economic recovery.
The International Monetary Fund recommended last year that Saudi Arabia raise the value-added tax to its representatives, which the Kingdom did not take at the time, but Azour told a forum on Thursday that the fund does not recommend such increases in the region now, amid a recession.
He said, “It is not wise at this stage to increase taxes on consumption, especially in low-income countries, because this will create more deterioration and more pressure.”
He continued, “Our general principle here is for the oil exporting countries and others who have the ability and reserves to find the appropriate balance between providing support to achieve stability in the economy and controlling the state of public finances.”
“In the case of Saudi Arabia, for example, we did not recommend increasing the value-added tax three times over at this point, although I generally think it is an important goal to achieve.”
Riyadh announced an increase in value-added tax and a suspension of the high cost of living allowance last May, which shocked citizens and companies who were expecting more government support.
The IMF expects the economy of the Kingdom – the world’s largest oil exporter – to contract by 6.8% this year, as corporate activities are affected by the Corona Virus crisis and state revenues shrink due to low oil prices.
“Instead of moving to the easy procedure of increasing a consumption tax, for example, or maintaining an inefficient spending system, I think there is an opportunity to achieve more justice … and increase transparency in the way public money is spent,” Azour said.