Oil-rich Saudi Arabia has been a popular destination for expatriates since they didn’t have to pay tax on their income and could get most utilities and many other essential commodities at highly subsidised price.
The advantage started diminishing with prices of electricity and water going up by 30 percent after the government slashed the subsidies on them since December last year. The prices of many of these items and other essential commodities are likely to go up further next year when the value added tax (VAT) comes into force from January 2018.
But what has set alarm bells ringing for the expats is a new levy coming into force from 1 July 2017. The fee called ‘family tax’ or ‘expat levy’ was proposed in the Saudi budget for the year 2017 to shore up its sagging revenue in the aftermath of the decline in the global prices of oil.
The fee will be 100 Saudi riyals (Rs 1,721 as per the current exchange rate) per dependent this year. It will be doubled to 200 Saudi riyals for every dependent from July 2018, tripled to 300 Saudi riyals in 2019 and quadrupled to 400 Saudi riyals from July 2020.
The fee will be collected annually by the department of passport at the time of renewal of Iqama (resident permit). This means an expat living with his wife and two children in the kingdom will have to pay this year 3,600 Saudi riyals or Rs 62,000 when he goes for the renewal of his resident permit if he likes to retain his family with him.
Expats are not expecting their employers to bear or share the additional expense since most of the private companies are already burdened with a hefty fee for employing the expats. The Saudi government is now charging companies in which expats outnumber Saudis 200 Saudi riyals per month per expat worker.
The fee introduced under the naturalisation of the work force programme by the labour ministry will be increased to 400 Saudi riyals from January 2018. It will go up by 200 Saudi riyals every year until 2020.
Leaders of Indian community in Saudi Arabia said that the proposed expat levy will not be affordable to majority of the Indian workers. They may have to either return or send back their families, says Anil Mathews, general secretary of the Dammam-based Pathanamthitta Non- Residents Association of Malayalees.
He told Firstpost that employers were not likely to compensate the workers with a hike in their salary since the recession caused by the decline in the oil price had badly affected private companies in which majority of the Indians work. On the contrary, the salaries of many were delayed or cut and increments stopped.
An AFP report said that the crisis had also led to mass layoffs. Saudi Binladin Group, a multinational construction conglomerate based at Jeddah, laid off around 70,000 expats. It said many oil refiners, banks and shipping firms were slashing thousands of jobs.
Several companies have also defaulted wages to their workers. Oger Ltd, another top construction firm, was even penalized by the Saudi government by withdrawing its services, including social security and passport affairs. The company claimed that the salaries were delayed as it had not received payments for the projects that were already implemented.
The AFP report said that the drop in global oil prices by about half since 2014 had left the kingdom with a huge budget deficit and billions of dollars in debt to private firms, chiefly in the construction business. The situation is likely to become worse with the government adopting more stringent measures to bridge the deficit.
The International Monetary Fund (IMF) has been urging Saudi Arabia and other Gulf states to introduce more taxes to soften the impact of falling government revenues as the price of oil drops, leaving a black hole in budgets, a report in the iExpats.com said.
Anil, who has been living in Dammam with his family for the last 22 years, said Saudi is moving towards a future without expats. Expatriate labourers account for roughly a third of Saudi Arabia’s 27 million population now. The number of Indians in the kingdom is estimated to be 4.1 million. Of this, 5.22 lakhs are from Kerala.
The crisis has already hit a large number of Indians. Over 10,000 Indians were stuck in the kingdom without food for several days in August last year after they lost their jobs. Even though the food crisis was solved with the Indian Embassy arranging food, many who have lost their jobs are still to get their pending wages, according to Anil.
Gulf watchers say that the additional resource mobilisation measures being taken by the Saudi government will trigger fresh exodus. KN Raghavan, chief executive officer of Roots-Norka, a field agency of the Non-Resident Keralites Affairs Department, said it was a matter of serious concern for the Kerala government since its economy is fuelled by the remittances received from the migrants.
“Most of the Keralites living illegally in the kingdom has returned under the amnesty introduced by the Saudi government in March this year. The new family tax and the increase in the cost of living would make continued living in Saudi untenable for many of those who are working legally in the country,” he told Firstpost.
However, S Irudaya Rajan, chair professor of international migration research unit of the Overseas Indians Affairs Ministry at the Centre for Development Studies (CDS), rules out a big exodus of the workers. He told Firstpost that majority of the Keralites living in Saudi with their families were highly paid office workers and professionals.
“The expat fee will at the most force the emigrants in the middle income group to send back their families. This will be a blessing for the state since they will send the money they spend now on maintaining their families in Saudi to their families back home. This will push up the remittances from Saudi Arabia,” he added.
However, Anil feels that return of large number of emigrant families might affect shops and small businesses resulting in more job losses and hike in prices of essential commodities. He said many economists and social commentators in the kingdom had been warning the government against the adverse effects of these reforms.
Mahamoud Ahmed, a social commentator, said in an opinion piece in Saudi Gazette that the steps being taken by the government to augment its revenue would hurt the economy. Ahmed said many small and medium companies in Saudi Arabia have been relying the most on expat workers. With these fees, it is expected that many of them will lay off most of their expat employees.
“We must understand that these expats are paying Iqama fees to the government, paying phone bills to Saudi companies, paying house rent to a Saudi landlord, buying food from groceries from shops owned by Saudis, depositing their money in Saudi banks. They are getting treatment from Saudi hospitals and teaching their children in private schools owned by Saudis. If they leave the country, a huge chunk of money will disappear,” Ahmed said.
An official of the Riyadh Chamaber of Commerce and Industry has also aired similar opinion.
Gulf newspaper Al-Watan cited Abdullah Al-Maghlouth, a member of the chamber’s investment and securities committee, as saying that the new monthly fee imposed on expats will have an “adverse” impact on private sector firms.
The report said the real estate market, including offices, shops and apartments, could also be affected as expats opt to leave the country with their families. The official called for measures to alleviate the negative impact of the measures including the nationalisation of jobs.
Expats like Anil hopes the Saudi government will realise the mistake and reverse its decision. He said majority of the Indians had adopted a ‘wait and watch’ policy. Moreover, it is difficult for them to send the children back home since the admission process for the next academic session in India has already begun.
Reports, however, said many Indians had sent back their families before the commencement of the admission process anticipating the additional burden. Saji Joseph, who runs a small business at Jeddah, has got admissions for his two children in a school in Kozhikode.
He told Firstpost that he was in the process of winding his business and returning to Kerala with his wife. “I am waiting for my sponsor to return the investment he has made in the business. He has been deferring it citing the financial crisis. I doubt whether I will get my money back,” said Saji, who hails from Palakkad district in Kerala.
Many like Saji are leaving Saudi with their Gulf dreams shattered as the government is going ahead with its goal of transitioning the country with nearly an all-Saudi workforce.
Updated Date: Jun 22, 2017 16:02 PM