RIYADH:

Saudi Arabia set a range of income tax rates for producers of oil and hydrocarbons, the official Saudi Press Agency reported on Monday, quoting a royal decree.

The tax rate for investments exceeding 375 billion riyals ($100 billion, Dh367 billion)) will be 50 per cent, SPA said. It gave other rates for producers with smaller investments.

SPA did not say whether the announcement was directly related to national oil giant Saudi Aramco. Saudi authorities also announced a plan to cut the tax rate on Aramco from 85 per cent to 50 per cent to encourage foreign investment when the company is has it initial public offering (IPO).

“This move carries strategic benefits for Saudi Arabia, its citizens and future generations,” Finance Minister Mohammad Al Jadaan said in a statement about the tax cut.

The government, which is struggling to close a budget deficit due to cheap oil that totalled $79 billion last year, obtains over 60 per cent of its income from oil, so the tax change could affect its finances.

However, analysts said the measure might not have a big impact since tax revenue was expected to be replaced by dividend payments from Aramco.

“Any tax revenue reductions applicable to hydrocarbon producers operating in the kingdom are replaced by stable dividend payments by government-owned companies, and other sources of revenue including profits resulting from investments,” Jadaan said.

The firm has not revealed its post-IPO dividend policy.

He said in a later statement to Reuters that the 2017 state budget had been prepared with the tax change in mind, so government revenues and public services would not be affected.

Industry executives have said the IPO will help Aramco, one of the country’s most efficient state enterprises, expand its business in line with market principles and form partnerships with private-sector companies around the world.

Aramco chief executive Ameen Nasser said in a statement that the tax cut would help Aramco develop by bringing the company in line with international benchmarks.

The kingdom has intensified economic reform efforts after oil prices plunged last year below $40 per barrel from above $100 in 2014.

The government made unprecedented cuts to fuel and utilities subsidies in a country long-accustomed to some of the cheapest petrol prices in the world.

The budget deficit last year amounted to $79 billion, down from the record deficit of $97 billion registered in 2015.