Saudi finance minister says cut in Aramco tax won't hurt state finances

The new rates on hydrocarbon companies announced by royal order on Monday are effective retroactively from January 1, according to the official Saudi Press Agency. Saudi oil companies valued at between 375 billion and 300 billion riyals, will pay 65% income tax, those at between 300 billion and 225 billion riyals will pay 75% and any company below that threshold will continue to pay 85%.

Saudi Arabia on Monday reduced the tax rate for Saudi Aramco as plans move forward to publicly list shares of the state-owned oil giant. "I am sure there will be more such moves to follow in coming weeks and months", an oil industry executive said.

Saudi Aramco today welcomed the introduction of the new tax regime for all hydrocarbon producers operating in the kingdom as another positive step in the diversification of the kingdom's economy. It is gearing up to be the largest flotation in history, with officials valuing Aramco at more than $2 trillion. The decision to cut the tax rate to 50% had been flagged earlier this year and is in line with the recommendation of Saudi Aramco's own management to the Saudi government. "The royal decree concerning taxes is in the interest of the kingdom, its citizens and future generations", said Energy Minister Khalid al-Falih, whose country is the world's biggest oil exporter. Aramco now pays a 20 percent royalty on its revenue and an 85 percent tax on income.

However, analysts said the measure might not have a big impact since tax revenue was expected to be replaced by dividend payments from Aramco. The rates increase for producers with smaller investments.

He said in a later statement to Reuters that the 2017 state budget had been prepared with the tax change in mind, so government revenues and public services would not be affected. That was echoed in a statement from Khalid Al-Falih, Minister of Energy, Industry and Mineral Resources, who said the change "brings the kingdom of Saudi Arabia in line with global benchmarks".

  • Zachary Reyes