Saudi Arabia, the Arab world’s biggest economy, reported a 4 per cent increase in revenue in the third quarter on the back of higher taxes.
Total revenue for the period ending September 30 rose to 215.5 billion riyals despite a decline in oil revenue, the kingdom's Ministry of Finance said in a statement on Wednesday. Taxes on income, profit and capital gains jumped 50 per cent year-on-year to 7.2bn riyals and taxes on goods and services, including VAT and excise tax, rose 37 per cent to 51.5bn riyals. Saudi Arabia increased VAT from 5 per cent to 15 per cent on July 1.
Taxes on international trade and transactions also climbed 5 per cent to 4.5bn riyals, according to the ministry. Other taxes, including zakat, increased more than three-fold to 12bn riyals. Oil revenue was 30 per cent lower year-on-year at 92.5bn riyals.
Total expenditure during the period rose 7 per cent to 256.3bn riyals with subsidies-related expenditure growing more than three-fold to 8.1bn riyals as the kingdom sought to extend support to companies by introducing wage protection measures for Saudi nationals affected by the Covid-19 pandemic. Spending on grants increased 74 per cent to 477 million riyals, while financing expenses dropped 8 per cent to 5.4bn riyals, the statement said.
The kingdom posted a total budget deficit of 40.76bn riyals during the third quarter.
"Taxes on goods and services improved from 37.6bn to 51.6bn, implying an increase of 14bn riyals year-on-year, in line with our expectations," analysts from Al Rajhi Capital said in a note, citing the VAT hike as the main reason.
"For the full year of 2020, we expect VAT of 28bn riyals and 88bn riyals for 2021."
Saudi Arabia expects gross domestic product to expand 3.2 per cent in 2021 as its economy continues to recover from the pandemic-induced global economic slump.
The growth will be “driven by the assumption economic activities will recover, the trade balance with the main trading partners will improve as a result of easing the lockdown measures and that global supply chains will gradually recover, which will positively affect the domestic economy,” the Ministry of Finance said in a pre-budget statement issued last month for the 2021 fiscal year.
The government will also focus on developing the role of the private sector by providing it with greater investment opportunities in infrastructure projects, according to the finance ministry.
For the 2022 fiscal year, real GDP growth is projected at 3.4 per cent and for 2023 it will be 3.5 per cent. GDP growth is estimated to contract 3.8 per cent during the current fiscal year.
The inflation rate is estimated to be 2.9 per cent in 2021 and 2 per cent in 2022 and 2023, while total revenues are expected to gradually rise in the next three years from 770bn riyals in 2020 to 846bn riyals in 2021, 864bn riyals in 2022 and 928bn riyals in 2023.
The kingdom’s budget deficit in 2021 is expected to narrow to 145bn riyals or about 5.1 per cent of GDP from nearly 300bn riyals, or 12 per cent of GDP in 2020. In 2022, the budget deficit is projected to fall further to 91bn riyals, or 3 per cent of GDP and to 0.4 per cent of GDP in 2023.
“The government will adopt flexible policies that keep pace with domestic and international developments, which will in turn contribute to mitigating the effects of this crisis and help face it with a high level of efficiency,” the finance ministry said in the pre-budget statement. “The government will also continue to assess developments and take appropriate fiscal policies to raise fiscal performance and ensure fiscal sustainability in the medium and long terms.”
The pre-budget statement adjusted overall spending upwards by about 2 per cent of GDP, which "implies that additional spending on healthcare and to support the domestic economy will now more than offset planned
spending reductions", analysts from ratings agency Moody's Investors Service said in a note earlier this month.
