Riyadh: KPMG Al Fozan & Partners, the leading provider of audit, tax and advisory services in Saudi Arabia, today released its report on the inflationary trends in the Kingdom of Saudi Arabia, which analyzes the inflationary trends from 1964 to 2019.

Saudi Arabia overhauled its tax system to increase revenue from its non-oil sectors as it successfully introduced VAT in January 2018. The VAT for most goods and services, such as food and beverages, domestic transportation, hotels, private education, and private healthcare, put upward pressures on prices, as inflation reached to 2.5 per cent in 2018 from -0.8 percent in 2017.
 
“Although the introduction of VAT was essential to achieve some of the Vision 2030 goals, such as increasing non-oil revenue, other economic indicators need to be looked at such as GDP growth, especially considering total real GDP slowed by 0.9 percent in 2017. However, the economy experienced prices deflationary period at the beginning of 2019, where it is expected to remain for the rest of the year, before normalizing in 2020,” commented Dr. Hussain Abusaaq, Chief Economist and Head of Research, KPMG Al Fozan & Partners.
 
While the timing of the introduction of tax-based reforms and energy reforms might not be favorable due to the prevalence of deflationary situation in 2017, the benefits of such reforms are likely to very good for the Kingdom in the long-run.

“In the short run, VAT is expected to cause minimal one-off price rise. In the long term, it is not likely to cause a significant or sustainable increase in underlying inflation,” he added.
 
Meanwhile, small and medium-sized enterprises (SMEs) experienced a moderate impact from VAT due to high compliance costs, and due to concerns regarding VAT neutrality, Dr. Abusaaq said.“In response, the government introduced the ‘Private Sector Stimulus Plan’ to stimulate growth, remove any potential obstacles and enhance private sector confidence,” he noted.

Saudi Arabia’s Small and Medium Enterprises Authority (SMEA) supports SMEs by establishing several initiatives such as returning government fees, indirect lending to SMEs and raising the capital of some existing programs (Kafalah).

“As the government gradually moves towards accomplishing its goal of fiscal balance by 2023, increasing capital expenditure, a greater focus on its fiscal policy, Vision 2030 programs and Citizen’s Account Program could help to pull out the Kingdom from the current state of prices deflation and into the usual and healthy levels of inflation,” Dr. AbuSaaq concluded.

© Press Release 2019

Disclaimer: The contents of this press release was provided from an external third party provider. This website is not responsible for, and does not control, such external content. This content is provided on an “as is” and “as available” basis and has not been edited in any way. Neither this website nor our affiliates guarantee the accuracy of or endorse the views or opinions expressed in this press release.

The press release is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Neither this website nor our affiliates shall be liable for any errors or inaccuracies in the content, or for any actions taken by you in reliance thereon. You expressly agree that your use of the information within this article is at your sole risk.

To the fullest extent permitted by applicable law, this website, its parent company, its subsidiaries, its affiliates and the respective shareholders, directors, officers, employees, agents, advertisers, content providers and licensors will not be liable (jointly or severally) to you for any direct, indirect, consequential, special, incidental, punitive or exemplary damages, including without limitation, lost profits, lost savings and lost revenues, whether in negligence, tort, contract or any other theory of liability, even if the parties have been advised of the possibility or could have foreseen any such damages.