Coronavirus: Saudi Arabia cuts handouts, triples VAT in multibillion dollar austerity drive

Saudi Arabia seeking to shore up finances hit hard by low oil prices and a coronavirus-driven slowdown

The steps taken to shore up revenue and rationalise spending are valued at about US$26.6 billion

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The Great Mosque and the Mecca Tower, deserted on the first day of the Muslim fasting month of Ramadan on April 24. Photo: AFP

Published: 2:32pm, 11 May 2020Updated: 9:04pm, 11 May 2020

Saudi Arabia unveiled plans Monday to triple its Value Added Tax (VAT) and halt monthly handouts to citizens as part of a series of austerity measures amid record low oil prices and a coronavirus-led economic slump.

The measures, which state media said would boost state coffers by 100 billion riyals (US$26.6 billion), come as the government steps up emergency plans to slash spending to deal with the twin economic blow.

The austerity drive could stir public resentment amid an already high cost of living and intensify scrutiny of lavish multibillion dollar state projects and expenditure including the proposed purchase of English football club Newcastle United.

“It has been decided the cost of living allowance will be halted from June 2020 and VAT will be raised from 5 per cent to 15 per cent from July 1,” Finance Minister Mohammed al-Jadaan said in a statement released by the official Saudi Press Agency.

Deserted streets in the Saudi coastal city of Jeddah. Photo: AFP

Jadaan insisted the measures were necessary to shore up state finances amid a “sharp decline” in oil revenue as the coronavirus pandemic saps global demand for crude.