Arab News, Saturday, Sep 11, 2021 | Safar 4, 1443
Riyadh Capital CIO doesn’t rule out VAT reduction as non-oil economy slows
Saudi Arabia:
Saudi Arabia may lower its
value-added tax from its current 15 percent rate to 10 percent to counter a
slowdown in the Kingdom’s non-oil economy in the second half of the year,
according to Riyadh Capital Chief Investment Officer Hans-Peter Huber.
The rate was raised from 5 percent in July 2020 to
support increased government spending in response to COVID-19.The increase in
VAT to 15 percent was a temporary measure and will be returned to between 5
percent and 10 percent within one to five years, once public finances have been
returned to balance, Crown Prince Mohammed bin Salman said in a television
interview in April.
The rise in oil prices will reflect positively on
Saudi GDP and will help the Kingdom recover its foreign reserves, Huber said in
an interview with CNBC Arabiya on Thursday.
Foreign exchange reserves will increase this year
and the next year, he said. The trade balance will improve and “we will witness
a large surplus during this year or higher next year, and this will compensate
for any capital outflows,” said Huber.
The economy will expand about 3.5 percent in the
third quarter of the year and the same in the final quarter, leaving it about
1.5 percent higher over the year, followed by a 5.6 percent gain in 2022, he
said.
The Saudi economy is affected by higher oil prices
two-fold, he said: it encourages the Saudi government to increase spending, with
a positive knock-on effect for the non-oil economy; higher oil prices are a sign
of lack of supply, and this will allow OPEC and the Kingdom, in particular, to
gradually increase their production.