Revisiting the expat dependent tax

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There are expectations that the conclusion of Haj this year will also spell the end of service of many expats. With rising levies on each expat every successive year, many have made preparations for an early departure. For those unfamiliar with the levy, the Kingdom of Saudi Arabia instituted a series of financial reforms in an effort to wean the nation off a dependency on oil, which in recent years has not proven to be a stable or reliable source of income.

Expats most hard hit by these new economic measures fall primarily in the lower income group, fast joined by some in the middle-income group. So much so that a large number of expat families have decided to send their children back to their homelands to offset the levies and continue working here on a bachelor status. The countries most affected are India, Pakistan, Sri Lanka, Philippines, Bangladesh and Nepal.

The government’s move has been met with concern by business owners who fear that the loss of their skilled expat staff will bring businesses to a halt. The Jeddah Chamber of Commerce and Industry (JCCI) has asked the Ministry of Labor and Social Development (MLSD) to cancel the expat levy for firms which have an equal number of Saudis and expat workers. The committee head of the Jeddah Chamber of Commerce and Industry Entrepreneurship Committee said 25 percent to 30 percent of private establishments might shut down if no changes are made in current policies.

The Council of Saudi Chambers (CSC) has proposed a few changes in the expat levy policy. It called for extending the deadline for the expatriate levy to 2025 from 2020. It also called for exempting micro, small and medium businesses from the expat levy in their first years.

Some economists have charged that the end result is contrary to what was actually intended. The decision embodies adverse effects for the Kingdom and its nationals. Instead of being a positive move for the country and its people, it is clear that it does not serve the interests of either. The adverse consequences of the expatriate fee are increasing. It is slowly becoming clear that the decision is resulting in more harm than benefit.

The country is the biggest loser with the collective departure of expatriates and their families. This has a negative effect on the market, which is now suffering from a lack of economic activity. A major proof of this is the fact that streets are full of signs advertising vacant apartments and shops for rent. Where once neighborhoods in Jeddah were bustling, today many of them seem half empty.

The rent for residential units continues to decrease since the downward trend began about six months ago when the exodus of expatriate families started following the imposition of a levy on the dependents of expatriates, which the majority of expats who work for low salaries cannot afford to pay.

Saudization has been enforced on businesses, and many car rental companies closed business ahead of the March 18 Saudization deadline. Apparently not all offices have complied with the decision of the Ministry of Labor and Social Development while some closed their doors for fear of the hefty fines on businesses that do not abide by Saudization regulations.

“The sector cannot pay high salaries to Saudis because business owners have to pay installments on the vehicles they bought and have to pay operational expenses including car service, gasoline, oil change, daily washing, annual rent of office and other expenses,” said one investor. His business does not generate the same lucrative profits it used to. The question then arises: Where are the gains made by the imposition of fees on expatriates and their dependents?

Despite complaints from many quarters of the private sector, Saudi Arabia has no plans revise the expat fee that was imposed in January on Saudi businesses that employ foreign workers. That was clearly stated by the Kingdom’s finance minister Mohammed Al-Jadaan who added: “There are no plans to revise any of the reforms that we have implemented. These have been modeled for an extended period of time. We knew what the impact was going to be.”

Latest figures show that while more than 700,000 expats have left the country in a little more than a year, Saudi unemployment figures actually rose to 12.9 percent in the first quarter of this year.

The question is: Have the projections that went into making the decision on the dependent tax been realized?

— The author can be reached at talmaeena@aol.com. Follow him on Twitter @talmaeena


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