Saudi Arabia introduces first tax in attempt to reduce deficit

Falling oil revenues have led Saudi Arabia to put an end to tax-free living in the country, as it attempts to reduce its huge budget deficit of $97bn by introducing a 5% value added tax on certain goods.

The Saudi cabinet agreed the deal with other Gulf nations as the slump in oil prices hits the profits of countries in the region.

The official press agency in Saudi Arabia said that the government "decided to approve the unified agreement for value-added tax", and that it would be put forward for royal decree.

The International Monetary Fund had previously recommended the introduction of taxes in the Gulf states in order to diversify their revenue streams to cope with the low prices of the commodity.

Saudi citizens and residents have lived in a tax-free environment thanks to a heavily subsidised system, but the kingdom's government has begun to take steps to address its deficit, which had been spiralling out of control.

The country's budget surplus has been as high as 20% of its overall GDP, which is double that of the UK and the US at the height of the global financial crisis in 2008/2009.

Major construction projects have been put on hold, and cabinet ministers have had their salaries cut as they attempt to bridge the deficit, while Saudi Aramco, the world's biggest oil-producer, is being prepared for a flotation in 2018.

The New York Stock Exchange had been seen as the ideal place for such a large IPO, with it expected to fetch more than $100bn.

However in December, following the election of Donald Trump to the White House, as well as the introduction of a new law which allows US terror victims to take up legal cases against Saudi Arabia, officials in the kingdom were reported to be keen to reevaluate their relationship with the US.

Trump's choice of Saudi-friendly former general James Mattis as his defence secretary indicated he may well seek to patch up relations.