Expats' savings are likely to be impacted by higher expenses as a result of new levy, VAT
By Cleofe Maceda, Senior Web Reporter
Dubai: The expatriate levy in Saudi Arabia will be a financial burden on both foreign workers and businesses, analysts have said.
Starting next month, the kingdom is set to start collecting a new monthly fee of 100 riyals (Dh97.93) for every expat dependent, with plans to increase the fee gradually next year until 2020.
The newly introduced fee will apply to foreigners who have families in Saudi Arabia and will be collected on top of the existing monthly tax that some companies are already paying for expat workers.
It is not clear who will shoulder the new levy, but there have been reports that some employers have already decided to charge the fees to staff’s monthly pay. “I suppose in most cases it will be borne by expats,” M. R. Raghu, executive vice president for Kuwait Financial Centre “Markaz,” told Gulf News.
Companies that have more foreigners than locals on their payroll are currently spending 200 riyals every month for every expatriate. The fee is applicable only to foreign workers that exceed the number of Saudi staff. Between next year and 2020, the tax will gradually increase. The fee will also be collected across the board, and will not just apply to employers heavily dependent on foreigners.
“For expatriate employees not exceeding the number [of] Saudi employees, the fee will no longer be waived but will be levied at a discounted rate,” PwC said in its briefing paper.
Raghu said the revised expat levies will put a strain on businesses that have a huge number of foreign workers. “The primary concern of the levy is that the cost of doing business would increase multi-fold as a consequence of this taxation. The companies that have more Saudi employees than expatriates will no longer be exempt, but will have to incur a discounted levy,” said Raghu.
Raghu said organisations with higher expat workforce are likely to suffer more from the incremental levy per employee. Expats, at the same time, will not just have to fork out a monthly fee if they have dependents, they’ll have to face higher expenses, with the upcoming VAT and higher fuel and utilities costs eating into their savings.
“Additionally, there would also be tax on dependents of the expat employees. Adding to this, the other indirect levies, such as VAT and higher fuel and utilities charges would further considerably impact the savings of the expats.”
“A back of the envelope estimate is that the savings could decline between 6 per cent and 15 per cent as a consequence. The levies are good for the economy as long as they don’t take away the attractiveness of doing business in the country, especially the private sector which is highly dependent on expat labour.”
Saudi Arabia has considered collecting taxes, including the value-added tax (VAT) and excise tax on tobacco and drinks, to boost its revenues amid weak oil prices. The excise tax took effect on Sunday, causing some of the retail products to cost double.
It is estimated that the expat fees alone will generate 65 billion Saudi riyals for the kingdom by 2020. Abdullah Al-Maghlouth, member of the Riyadh Chamber of Commerce and Industry, had earlier warned that the new tax will negatively impact the private sector.
“The fees will have an adverse effect on the private sector including the contractors, the building material, the food and consumer products will increase prices. The citizen will be harmed. This will also harm the attractiveness of the work environment in the kingdom,” Saudi Gazette quoted Al-Maghlouth as saying.
© Gulf News 2017