Why KSA is suspending cost of living allowance and increasing VAT?

In a bid to address the impact of the coronavirus crisis, Kingdom of Saudi Arabia KSA has announced to suspend the cost of living allowance and increasing value added tax (VAT) as part of tackling measures.

Finance Minister of Saudi Arabia, Mohammed Al-Jadaan said “Cost of living allowance will be suspended as of June first, and the value added tax will be increased to 15% from 5% as of July first.”

He said “the twin measures are part of efforts to shore up state finances, which have been battered by low oil prices and the coronavirus crisis.” Al-Jadaan warned last week that Saudi Arabia would have to take “strict and painful measures” to deal with the twin impact of coronavirus pandemic and falling world oil prices.

“We must reduce budget expenditures sharply,” Al-Jadaan said, also added that some government projects may be slowed down to reduce expenditure. “Current actions taken to date to cut spending are not enough, and Saudi public finances will need more control and the journey ahead is long,” he said.

The global pandemic has wrecked the global economy, leaving millions out of work, with the US alone reporting more than 20 million people becoming unemployed in April. Globally , the novel coronavirus also known as COVID-19 has infected more than 4.18 million people as of early Monday, with the death toll surging to 283,000 since the coronavirus was first detected in Wuhan, China last December. However in Saudi Arabia, the number of coronavirus infections rose to 39,048 as of Sunday, of which 27,345 were active cases and 11,457 have recovered.

Furthermore The Saudi Health Ministry reported 7 new deaths, all expatriates, raising the death toll to 246.