Saudi tax axe forcing thousands of Pakistanis to return home

August 12, 2017
Published in Economy

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By: Zamir Hussain Laghari

Since July 1st, Saudi Arabia has been collecting a new levy from expatriates and their dependents in a move seen to augment state revenues.

The new monthly fee will apply to foreigners and their families in Saudi Arabia and will be collected on top of the existing monthly tax that some companies are already paying for expat workers.

All dependents are included in the regulation, including children, wife, as well as maids and drivers working directly for a sponsor.

The tax will not apply to foreign domestic workers employed by Saudi citizens.

The new ‘dependent fee’ has set alarm bells ringing for millions of foreigners currently resident in the kingdom, including Pakistanis, Indians, Bangladeshis and Sri Lankans.

Hosts the largest diaspora of Pakistanis – about 2.2 million (2,200,000) – Saudi Arabia seeks to cut its huge budget deficit, which hit $79 billion last year.

The recent development, especially since the diplomatic isolation of Qatar, has made living and working harder in Saudi Arabia that was once a tax-free country.

The move has forced thousands of Pakistani families, especially the low-income and middle-class families, to plan their return to Pakistan under circumstances of uncertainty and unaffordability.

Reports coming from the kingdom suggest that people are selling out their households and evacuating flats and houses in a large number to leave the country.

“Nearly half of the people living with family have made up their minds to leave Saudi Arabia, thousands have sent their families home, anticipating financial hardships, while the remaining ones are surely waiting in a hope that the rulers will withdrawal this decision,” said a Riyadh-based Pakistani IT expert, who has been living there for last six years.

“Under such circumstances, the men will be compelled to live as bachelors,” he said.

For some, this change would mean spending nearly half of their salaries on securing the dependent visas for their families.

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Impact on Pakistan

Financial experts say the Saudi tax decision can also affect Pakistani economy as remittances, which are lifeline for Pakistan’s economy, can further take a significant hit in the future.

The country-wise details for the month of January 2017 show that inflow of remittances from Saudi Arabia significantly came down to $434.15 million compared with $463.44 million in January 2016, according to the State Bank of Pakistan.

The situation is not satisfactory in recent months.

In first 11 months of the fiscal year 2016-17 (July to May), overseas Pakistani workers remitted $ 17463.62 million, compared with $ 17843.68 million received during the same period in the preceding year.

May 2017 witnessed $ 514.5 million inflow from Saudi Arabia, as compared to $547.77 million in May 2016.

In June, the remittances of $ 438.07 million was received from the kingdom followed by $408.84 million in July – a decline of $106 million in last three months of the fiscal year.

In January this year, a Saudi newspaper while quoting security sources said that more than 39,000 Pakistanis have been deported from Saudi Arabia in the past four months.

And the fact is that the kingdom is fast deporting foreigners, making it very hard for them to survive easily for employment and other reasons.

Saudi Arabia’s ambitious Vision 2030 plan, unveiled in April 2016, aims at transforming the oil-reliant country into a more vibrant and ‘business-friendly economy’.

This will include the sale of a five percent stake in state-owned oil giant Aramco at between $2 trillion and $2.5 trillion.

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Tax Axe

The monthly levy will be SR.100 per dependent (non-Saudi resident) in the first year. The amount will be raised gradually every year until 2020. It will double to SR.200 after a year, then increase to SR.300 in July 2019 and SR.400 in 2020.

Saudi Council of Ministers has approved the new fees as part of the Fiscal Balance Program adopted in December 2016.

It is estimated that the expat fees alone will generate 65 billion Saudi riyals for the kingdom by 2020.

Such a policy is believed to have been framed as a response to weakening oil prices, leading to a shrinking of the country’s revenues.

Burden for Businesses

The new tax is a financial burden on both foreign workers and businesses.

Businesses in Saudi Arabia currently pay 200 riyals per month for each non-Saudi employee as a levy to the kingdom. This rule applies to all organisations where foreigners exceed the number of local workers.

From next year, this fee will also be hiked gradually until 2020. And it will no longer be waived for businesses with foreign workers not exceeding the number of Saudi staff, but will be imposed at a discounted rate.

There have been reports that some employers have already decided to charge this new fees to staff’s monthly pay.

Experts say the revised expat levies will put a strain on businesses that have a huge number of foreign workers.

Troubles Snowballing

Apart from the new tax, the cost of living in Saudi Arabia is expected to go significantly higher.

Prices of beverages and tobacco will double and job security will also be diminished as companies lay off overseas employees to deal with the hit taken by crude oil prices.

Saudi Arabia has implemented 100 percent excise tax on tobacco products and energy drinks, and 50 percent tax on soft drinks from last month, calling it the ‘sin tax’.

Pinch of New Fee

Expats went on vacation with their families in the peak holiday season felt the pinch of the new dependent fee when they tried to pay the exit-reentry visa fee for family members.

Expats looking to leave the Gulf state for holidays were directed to pay the new levy in advance.

Under Saudi’s visa system, known as iqama, expats leaving the country must pay an exit and re-entry fee for themselves and their family members.

The Saudi passports office said that the new fees “should be paid before issuance of exit/re-entry visa or renewal of residence permits.”


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Story first published: 12th August 2017

 
 

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