JEDDAH, Saudi Arabia: Saudi Arabia’s government has cut the income tax paid by national oil giant Saudi Aramco to smooth the company’s initial public offer of shares next year, which is expected to be the world’s largest equity sale.
A royal decree on Monday, retroactive to January 1, set a tax rate of 50 per cent for the firm. Previously, Aramco had paid 85 per cent tax, plus a 20 per cent royalty levied at a different stage; the decree did not mention the royalty.
The step appeared likely to reduce Aramco’s tax burden by as much as tens of billions of dollars, which could make the firm much more attractive to private investors. Saudi authorities had been considering such a change for months, sources told Reuters.
“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 said.
“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.” The government aims to sell up to 5 per cent of Aramco, listing the shares in Riyadh and at least one foreign exchange, to raise cash for investment in new industries, as the kingdom seeks to diversify its economy beyond oil exports in an era of cheap crude.
Saudi officials have predicted the IPO will value the company at $2 trillion (Dh7.35 trillion) or more. Many private analysts have been sceptical, making estimates below $1 trillion, but a 50 per cent tax rate could bring the offer closer to $2 trillion.
— Reuters
