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Expatriate fee in Saudi Arabia comes at a cost

The projected revenue generation from the tax on dependents of expat workers could be unrealistic as many may be forced to send their families home

Gulf News

According to some Saudi economists, the expat dependents fee is a vital means to solve the issue of unemployment in the country. The fees could be a burden on expatriates, many of whom will send their working family members home and prefer to stay in the kingdom alone.

As part of the government’s Fiscal Balance Programme, a resident’s dependent is to pay 1,200 Saudi riyal (Dh1,175) for one year as of July 1, 2017. Monthly fee for each dependent costs 100 riyal this year. It will increase by SR100 per month every year, reaching 400 riyal per month per dependent by 2020. This is expected to generate 1 billion riyal in revenue by the end of this year and 65 billion royal by 2020, based on the current number of expat dependents. The finance ministry projects a balanced government budget in 2020.

But with foreign workers sending their families home, that target may be elusive. The by-product will result in high remittances and less spending in the kingdom, a fallback bound to have negative repercussions on the economy. My guess is that the projected revenue collection from the expat dependent fee will be in negative as most foreign workers will send their families home.

I was at an Asian consulate recently and noticed throngs of people lined up all the way down the street. Over a cup of chai latte, the Consul General explained to me that this was the latest wave of expatriates who have decided to take advantage of the amnesty programme for illegal residents and leave the country without any jail term or monetary penalties. He told me that contrary to the first amnesty programme that was announced by the late King Abdullah Bin Abdul Aziz in April 2013 — and which many illegal residents had taken advantage of — this time around, the processing of the expatriates was mainly concentrated on facilitating the departure of the dependents of expatriates whose residency status for some reason or the other was not up to date.

“It’s the dependent fee levy that has created this number of people, you know,” he continued. “Household heads have come to the conclusion that it is not economical to keep their families here as annually the fees per individual are going to increase, burdening the expatriate worker further. Better now than later is what most are telling the consular staff, as they prepare papers for their dependents’ departures.”

The kingdom, the world’s largest exporter of oil, has since launched an economic diversification plan and slashed state spending in an attempt to cope with a deficit resulting from the plummeting of crude oil prices, its main source of income. The ambitious ‘Vision 2030’ plan, unveiled in April 2016, aims to broaden its investment base and diversify the once oil-dependent economy. ‘Vision 2030’ has seen the country impose taxes, including value added tax on goods, increase fees and charges and set up new industries to boost the sluggish economy.

An estimated 11 million foreigners work in the Saudi private sector, with 2.3 million of their dependents based in the kingdom, according to the Public Authority for Statistics. Spurred by this new tax, about 670,000 foreign workers are expected to leave Saudi Arabia by 2020, a report prepared by Banque Saudi Fransi revealed. According to the report, some 165,000 expats are expected to leave the country every year. In addition, the report said that the new fees imposed on the companions of the workers would add about 75 billion riyal to the exchequer over the next three years.

Now this is brushing the canvas with a broad paintbrush because it is apparent that with a shrinking expat population, one cannot expect an increase in revenue through the levying of a dependent fee. When an expat family leaves Saudi Arabia, many things are bound to happen. The money that was being earned and spent there would then be remitted. The money that had previously been used to vitalise the local economy through a multitude of channels and avenues would suddenly be wire-transferred to a distant land.

That is why the current projection of additional income through levying of a dependent tax is being seen by some as a heretical distortion and a misinformation. This huge income cannot happen, unless the kingdom becomes a huge industrial complex, attracting massive local and international investments. That can only be achieved over a period of at least 10 years. That is why, taxation of expatriates, before Saudi Arabia turns into a productive economy that depends on industry, is like putting the cart before the horse.

“Taxation of expatriates, before Saudi Arabia turns into a productive economy that depends on industry, is like putting the cart before the horse.””
-Tariq A. Al Maeena
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Indeed, if we begin to take stock of the numbers of departing expatriate dependents and the loss of revenue resulting from such an exodus, the figures in terms of revenue generation will not be encouraging. Wouldn’t a more profitable option be to allow long-term and law-abiding expats to apply for citizenship or grant them permanent residency? The colourful diversity and economic muscle of the Saudi society would then be greatly enhanced.

Tariq A. Al Maeena is a Saudi socio-political commentator. He lives in Jeddah. You can follow him on Twitter @talmaeena.

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