Saudi Arabia increases salaries and allowances to offset VAT impact

King Salman has ordered an increase in the salaries and allowances of Saudi Arabia's public sector employees and military personnel to help offset the introduction of value-added tax (VAT) and a rise in fuel prices this year.

The government ordered the annual bonus for civil and military employees to be paid from January 1 – the date when the Arab world’s biggest economy increased the price of petrol and implemented VAT to improve state finances.

Soldiers on duty in Yemen will receive a 5,000 Saudi riyals bonus, while state employees will get a 1,000 riyals a month as a cost of living allowance for one year, according to the royal decree carried by the Saudi Press Agency.

King Salman said he issued the orders after Crown Prince Mohammed explained that the recent measures “would increase the burden on some citizens”.
King Salman has also ordered an allowance of 500 riyals for pensioners and another 500 riyals payment for social security beneficiaries. The state has raised the student allowance by 10 per cent for a year and will bear the cost of VAT for citizens using private health and education services, according to the SPA report, which added that the government will also pay the VAT - not exceeding 850,000 riyals - for the purchase of a first home by Saudi citizens.A fall of oil prices from the mid-2014 peak of $115 a barrel has forced Riyadh to overhaul its hydrocarbon-dependent economy, control spending and cut state subsidies.

The kingdom, Opec’s biggest oil producer which relies heavily on sale of hydrocarbons for revenues, was the first Arabian Gulf state to introduce 100 per cent tax on tobacco and energy drinks and a 50 per cent levy on fizzy drinks in October last year.

In a bid to beef up non-oil revenues and reduce the burden on state finances, Riyadh increased fuel and energy prices and, on January 1, introduced 5 per cent VAT.

The government is trying to minimise the burden on consumers. In addition to the latest decree, the government last year said that some of its savings from its policies will be diverted to a Citizen's Account - approved in December by the council of ministers - that will allow for cash transfers to low- and medium-income households affected by energy price rises.