Saudi Arabia should consider raising a value added tax (VAT) to 10 per cent from the current 5pc, the International Monetary Fund (IMF) said, stressing the importance for the world’s top oil exporter to improve its fiscal position amid lower crude prices.
In a report published yesterday, the IMF said that a tighter fiscal policy was needed, as the Saudi budget deficit is projected to widen.
This is weighing on the kingdom’s economic growth, with some economists forecasting a contraction this year.
The IMF expects the budget deficit to increase this year to 6.5pc of gross domestic product (GDP) from 5.9pc of GDP in 2018 as higher government expenditure is likely to curb the upside of stronger non-oil economic growth.
Saudi Arabia introduced a 5pc VAT in January 2018 to improve non-oil revenue generation after a plunge in oil prices from mid-2014 bruised its revenues.
The IMF “suggested that consideration be given to raising the VAT rate from 5pc to 10pc” in consultation with the GCC.