Saudi Gazette report

RIYADH — Saudi Arabia has no plans to reduce the rate of value-added tax (VAT) in the near future, Minister of Finance Mohammed Al-Jadaan has said.

“The decision on VAT will be reviewed after several years and when the public finances improve," he said in an interview with Asharq News television channel on the sidelines of the G20 summit in Rome.

Al-Jadaan said the goal of the increased rate of VAT was to deal with the economic repercussions of the coronavirus pandemic. “When the public finances improve after several years, most likely within five years, it will be reexamined, but there will be no VAT cut anytime soon,” he said.

Saudi Arabia raised VAT from 5 percent to 15 percent in May 2020 as part of austerity measures to support its pandemic-hit economy.

The minister expected the Kingdom’s general budget would record a deficit by the end of this year. “We have a move to maintain spending control in the Kingdom despite the increase in revenues.

We want to continue working efficiently, and we may raise public spending, but any increase in spending items in the future, including the salaries of government employees, will be to cover inflation," he said.

In the third quarter of this year, the Saudi budget recorded the first quarterly surplus since early 2019, which is estimated at SR6.7 billion. The surplus revenue was the result of a 60 percent increase in oil income on an annual basis, along with a limited decline in public spending, according to data released by the Ministry of Finance on Sunday.

Al-Jadaan underscored the Kingdom’s emphasis on maintaining rationalized spending despite the increase in revenues. He described the G20’s approval to impose taxes on multinational companies as excellent. “This will benefit all economies, and slow the race to reduce taxes, which leads to an increase in deficit. It will also contribute to attracting companies to Saudi Arabia, given that all countries will have the same tax advantages, and therefore, there will be greater justice.”

Referring to the energy markets, Al-Jadaan said: “Investment in fossil fuels is important and necessary for the world economy, and the real challenge is not in oil but in gas, whose price has shot up by 500 percent in Europe. Any failure in these investments will cause a major energy crisis in the world.”

He stressed that investment in fossil fuels is important and essential for the world economy, and the real challenge is not in oil but in gas, whose price has shot up by 500 percent in Europe; and any slackness in investing in the sector will lead to a major energy crisis around the world.

The minister highlighted the remarkable achievements made by the G20 summit meetings. The G20 pledged to provide coronavirus vaccines to developing countries, in addition to support for saving the environment. A team of finance and health ministers was constituted in the G20 to make preparations to confront any future pandemics.

Referring to calls for the G20 to be more pragmaticand transparent in its decisions, Al-Jadaan said this was evident in pinning the responsibility on the major industrialized countries for causing climate change, and their commitment to contribute to securing $100 billion annually, over a period of at least five years, to support the environmental transformation in developing countries.

He pointed out that during Saudi Arabia's presidency of G20, the International Monetary Fund provided $650 billion to developing countries, of which Saudi Arabia’s share was $13 billion.

With regard to Saudi Arabia’s plan for carbon neutrality, Al-Jadaan stressed that it was the result of the Kingdom’s serious interest in tackling climate change. He said from 2015 to 2019, Saudi Arabia reduced carbon emissions by 3 percent, while other G20 countries increased their emissions by 2 percent in the same period.

Saudi Arabia has major plans for renewable energy and the use of the energy mix, with investments worth tens of billions of dollars, he said, adding: “We are serious about reaching carbon neutrality by 2060. We will set targets for every 10 years, and announce them successively.”

The minister said Saudi Arabia agreed with G20 in seeking to achieve the goal of limiting global warming to 1.5 degrees Celsius, but the compliance now is two degrees.

Al-Jadaan pointed out that 80 percent of the world still depended on conventional energy. “In my opinion, working on the carbon circular economy and the energy mix is the best solution for the global economy. The Kingdom is an influential country in energy markets, and our goal is to find a balance between supply and demand, and to ensure energy supplies to the markets,” he said.