Saudi decision to reduce oil tax to 20% may lure investors: analysts

Saudi Arabia’s decision to reduce its oil tax from 30 percent to 20 percent could lure investors and boost competitiveness in the industry, specialists forecasted.

The new corporate income tax for oil and natural gas companies, which was lately approved by the cabinet, is in line with Vision 2030 reforms to diversify the Kingdom’s economy.

The cabinet’s decision was retroactively applied as of January 1, 2018. This has no impact on government services because any tax revenue lost would be replaced by stable dividend payments by government-owned companies and other sources of revenue, including profits resulting from investments.

The new tax rate for Saudi Aramco will amount to 50 percent, slashed from 85 percent. The company also pays a 20 percent royalty on revenues.

The fee applies to all of Aramco's liquids production, a change from the previous structure, which applied a 20 percent royalty only to exports of crude oil and refined products.

Prior to the March 27 order, all oil and natural gas producers in Saudi Arabia were subject to a 20 percent royalty and an 85 percent tax on their net operating incomes, which do not include operating expenses.

Now income taxes will be based on the level of total investment a firm has made into the Saudi oil and natural gas sector. Companies that have invested more than 375 billion riyals ($100 billion) — including Saudi Aramco — will have their income taxed at 50 percent. Companies that have invested less will have their incomes taxed at 65, 75 and 85 percent depending on the amount of money they have contributed.