Saudi Arabia cuts oil giant's taxes to attract investors

Saudi Arabia cuts oil giant's taxes to attract investors
Saudi Aramco's tax bill will be chopped significantly, as the government looks to encourage investors to the state-owned company.
2 min read
27 March, 2017
Aramco's IPO is expected to be the biggest in history [AFP]

Saudi Arabia energy giant Aramco will benefit from a huge tax cut from the government, as Riyadh looks to sweeten the deal for prospective investors during next year's IPO.

Saudi Arabia's King Salman issued a royal decree on Monday cutting Aramco's income tax rate from a flat rate of 85 percent, to between 85 percent to 50 percent depending on the level of investment in the company.

Those benefiting from the new 50 percent tax rate are companies investing over 375 billion riyals ($100 billion) in Aramco.

"Saudi Aramco's tax rate is reduced from 85 percent to 50 percent, bringing it in line with international benchmarks," the government-owned oil giant said on its Twitter account following the decree.

Saudi Arabia plans to sell five percent of Aramco next year, as part of efforts to build up a large sovereign wealth fund and diversify Riyadh's economy, which is at present hugely dependent on oil.

"The royal decree concerning taxes is in the interest of the kingdom, its citizens and future generations," said Energy Minister Khalid al-Falih.

The Aramco IPO is part of Saudi Arabia's Vision 2030, an ambitious plan to shake-up the oil-reliant economy.

It is headed by the king's son Deputy Crown Prince Mohammed bin Salman who has been given important porfolios since Salman took charge of the country.

Experts believe the new move should help with Prince Mohammed's plans to diversify the economy, as a key part of this vision is the Aramco IPO.

"The royal order is a milestone in setting the stage for the world's biggest IPO. I am sure there will be more such moves to follow in coming weeks and months," an oil industry executive told Reuters.

"It shows the Saudi government is serious about the IPO of Saudi Aramco, and this is a very strong message to those who doubted that the government will follow through on taking Aramco public."

However, low oil prices could lessen the appetite of major investors, which has seen Saudi Arabia overspend by $79 billion last year.

Others remain sceptical about the prince's plans to shift the country away from its reliance on oil due to general lethargy in government and conservative attitudes at large.