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Focus on increasing non-hydrocarbon fiscal revenue could fall short of target
The breakdown of measures to raise non-oil revenues is not given. However, the tally is
close to the USS100bn targeted in the Vision 2030 and is thus likely to include
measures discussed then: hikes to administered energy prices, review of current levels
of fees and fines, introduction of new fees, land tax (we estimate annual revenues of
1.5-2% of GDP in its first phase when fully implemented). In this regard, the NTP
suggests forthcoming privatizations, imposition of taxes on harmful products (likely
tobacco and soft drinks), introduction of a Value-Added Tax (VAT) for which we estimate
annual revenues of up to 2% of GDP, implementation of a unified income tax and of an
income tax on residents (although official comments later clarified there were no plans
to tax nationals but stayed equivocal regarding expatriates).
Although there is no direct budgetary impact, water and electricity subsidies are
targeted to decrease by SAR200bn. Non-oil subsidies are targeted to decrease by 20%
by 2020. The latter, we believe, consists largely of subsidies for social and sports clubs,
private education, private hospitals, and other agricultural subsidies. They were
budgeted at SAR3.9bn (US$1.0bn; 0.2% of GDP) in 2016, down from SAR15.0bn
(USS$4.0bn; 0.6% of GDP) in 2015. A 20% cut to these on-budget non-oil subsidies would
thus generate minimal savings of US$O.2-US$0.8bn (0.1-0.5% of GDP) depending if the
reference base year was 2015 or 2016.
According to the Deputy Crown Prince pronouncements early in the year, medium-term
plans are also likely to target the introduction of US$400bn of unutilized state assets
(land, etc) to state-owned funds, with the latter in turn in charge of developing them
into projects and companies than can be IPOed to the public. In our view, this may be
linked to the Ministry of Finance assigned KPI of increasing total recorded non-oil
assets (real estate, etc) from SAR3trn to SARStrn.
The Deputy Crown Prince provided a breakdown of the government target of raising
US$100bn in additional non-oil revenue annually by 2020. The bulk of this increase in
non-oil revenue would come from the restructuring of subsidies which could generate
USS30bn per year (4.9% of GDP), according to the Deputy Crown Prince. VAT
implementation, a Green Card-like program and a plan to allow corporates to hire
foreign workers in excess of their official quotas could bring in US$10bn (1.6% of GDP)
a year by 2020, according to the Deputy Crown Prince.
Chart 14: US$100bn in additional non-oil revenue targeted by 2020 Chart 15: Government to focus on raising non-hydrocarbon revenue
SARbn lt Non-oil revenue
1,500 me Oi] revenue 100
BS$10bn ———= Oil revenue (% of total, rhs)
1
Dee ok US$40bn \ fF
. 1,000
80
US$30bn
70
500 1
m Other measures ' |
= Subsidy reform - 60
m Fees to excees foreign worker quotas TTT
™ Green Card-like program : Dr MMONMOT—DMOKN DTH VMONDMTMONDT OW a
m Value-Added Tax KSSGSSRSSSSSSDOBSOSSSSSOS
Source: Bloomberg Source: Haver, BofA Merrill Lynch Global Research
OS erartll Lynch GEMs Paper #26 | 30 June 2016 + 19
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