Fri | Sep 22, 2017

Aramco tax rate cut to 50% ahead of IPO

Published:Tuesday | March 28, 2017 | 3:00 AMSaudi ArabiA on Monday reduced the tax rate for Saudi Aramco as plans move forward to publicly list shares of the state-owned oil giant.

The new code, rolled out by royal decree from King Salman, taxes Aramco at 50 per cent on income retroactively, starting January 1.

Aramco CEO Amin Nasser thanked the king in a statement for the decree reducing the company's tax rate from what he said was 85 per cent, and said it "will bring Saudi Aramco in line with international benchmarks".

The company's oil production is Saudi Arabia's main source of revenue and its finances are not publicly disclosed. The government is embarking on an overhaul of its economy to move away from the heavy reliance on oil, its main export, after a sharp drop in prices.

The government is preparing to list less than five per cent of Aramco, possibly by next year, on the Saudi stock exchange and an international exchange. It is gearing up to be the largest flotation in history, with officials valuing Aramco at more than US$2 trillion. The government would remain the company's largest shareholder.

 

Lost tax revenues

 

The London-based Capital Economics said the lower tax rate means that the company will have a greater share of its profits available to pay out as dividends to shareholders. It says the dividends going to the government will largely cover the lost tax revenue, so that the move represents "merely a shift in the way that oil revenues accrue to the government".

Finance Minister Mohammed al-Jadaan said in a statement that the new tax code will have no impact on the government's ability to deliver services to its citizens.

He said any tax revenue reductions "are replaced by stable dividend payments by government-owned companies, and other sources of revenue, including profits resulting from investments".

Energy Minister Khalid al-Falih also said the royal order will not negatively affect state coffers, adding that the kingdom's hydrocarbon resources "remain sovereign".

The decree imposes a 50 per cent tax on oil and gas producers that have invested capital of more than US$100 billion in the kingdom. That figure jumps to 65 per cent for producers with between US$80 billion and US$100 billion in invested capital, 75 per cent if between US$60 billion and US$80 billion, and 85 per cent on producers with invested capital that does not exceed US$60 billion.

- AP