With the oil price crisis that has been ongoing since 2014, the Persian Gulf countries’ many tax exemptions and subsidies are soon to be a thing of the past. The Saudi Council of Ministers recently approved imposing a value-added tax, in agreement with the recommendations of the International Monetary Fund for reducing national budget deficits.
The 5% tax will be applied to a list of goods agreed to by the six countries of the Gulf Coordination Council (Saudi Arabia, Bahrain, United Arab Emirates, Kuwait, Oman, Qatar), including tobacco, non-alcoholic beverages and energy.
Saudi Arabia is the world’s largest oil exporter and the Arab world’s largest economy. However, a recent IMF report estimates that its 2017 growth will be just 0.4%, lower the previous year’s performance of 1.4% The Saudi government is responding by cutting public spending and seeking new forms of revenue to balance the budget by 2020.
In the meantime, oil prices continue to fall for the second day in a row, compensating for increased drilling in the United States. WTI went down 0.27% to $52.90 a barrel today, while Brent dropped 0.36% to $55.16. Analysts see no signs of prices either jumping up past 60 dollars or descending below 50. News from the oil market is conflicting. On one hand, Saudi Arabia has honored its commitment to cut production by exactly 486,000 bpd. On the other, fields in the USA are being reopened left and right, reaching 15 as of 20 January, as American oil concerns scramble to profit from the rising prices. According to the International Energy Agency, production in the USA has grown by 320,000 bpd in 2017. At the other end of the globe, following a series of missteps and false starts, Libya has resumed steady output, reaching its highest levels since 2014. Amid all these various conditions, the market remains optimistic that the oversupply since mid-2014 should begin to gradually disappear, as the price drop begins to really take effect.