Plans to impose a tax of SR 2,400 a year for each expatriate worker in the Kingdom is still not being favored by economic analysts and the business community.
Asked about the potential benefits of such a move, businessmen termed the move as unfair and said it was doubtful whether the proposed tax would speed up the ongoing Saudization program.
Proposals to impose the tax have already evoked mixed reactions from the country’s expatriate community.
Saudi business owners have said that the decision has “zero advantages” and would not contribute to benefit the local economy.
The decision came as a step toward restricting the rate of hiring of expatriate workers in Saudi labor market.
Labor Minister Adel Fakeih recently put the official unemployment rate at round 10.05 percent in Saudi Arabia.
“There are half a million unemployed Saudis in the country where around 8 million expatriates live here — 6 million of them in the private sector — with their annual remittances exceeding SR 100 billion,” he said.
Saleh Hefni, CEO at Halwani Bros Company, said he expected the new proposal to contribute to increased inflation rather than Saudization.
“Additionally, such a decision will increase the cost of hiring expatriate workers and force their sponsors to additionally incur a large sum. The tax proposal, I think, will not stop the private sector’s dependence on expatriate workers, rather they will try to cover the cost of expatriate workers by increasing the prices of the products they produce and sell in the market,” he added.
He added: “However, some companies who have a high Saudization rate will not be impacted adversely by the proposal when implemented. Companies still short of their Saudization targets will be affected more than their other counterparts who have met their targets.”
According to Hefni, businessmen face many challenges in their efforts to support the Kingdom’s Saudization program.
“However, implementing Saudization has not been and should not be a difficult task. Our companies are lacking in their vision of Saudization, which is why we are lagging behind in the Kingdom’s vital program,” he added.
Abdullah Saad Al-Ahmari, head of real estate valuation committee at Jeddah Chamber of Commerce and Industry (JCCI) and economic researcher, was forthright in saying that the new move had a lot of disadvantages.
“This decision has ‘zero advantages’ from the point of view of the economy. The rate of Saudization will not increase, rather the small and medium enterprises (SMEs) will shut down. Such decisions will lead Saudi business owners to wind up their projects and become unemployed,” he said.
“Saudi SMEs need more support and financial loans from the government to grow more and expand more job opportunities for Saudis. Such decisions will lead local companies to lose huge amounts of money,” he said.
Al-Ahmari wondered whether this decision will help Saudis with finding job opportunities. “We must encourage the next generation of young Saudis to be qualified, educated and trained enough to do skilled jobs,” he said.
“We should push our citizens to work in high positions rather than pushing them to work in low positions that carry a monthly salary ranging from SR 1,500 to SR 3,000,” he added.
Reem Asa’d, an economic writer, said that various aspects of the tax proposal need to be clarified.
“We need to know more details about this decision, especially when the rate of expatriate workers varies from one sector to another. For example, the rate of expatriates in construction, transportation, and restaurant sectors is higher than any other sectors. Therefore, such decisions will impact some sectors,” she said.
She added: “In addition, we are still not in a position to replace expatriate workers in sectors like transportation, construction and hospitality. Saudis still refuse to work in ‘low-class fields’ due to several reasons. If the Ministry of Labor wants Saudis to replace expatriates, they have to set minimum wages and limit working hours. Otherwise, no Saudi will agree to work in these sectors. “
Raed Al-Tayyar, a member of contracting committee at JCCI, stated that the tax proposal will be nothing short of a crisis for companies in the construction sector.
He said: “The rate of Saudization in construction sector is estimated between 5-10 percent. This means that expatriate workers account for 90 percent. We wouldn’t be able to pay huge amounts in the form of taxes for our expatriate employees. For example, a company may have a wage bill of SR 2.5 million for 1,000 workers. Thus the construction sector is of the view that it should be excluded from the purview of such decisions. We are waiting for the Ministry of Labor to announce a final decision in this regard. In construction sector we have no choice but to employ expatriates because Saudis tend to refuse to work in this sector.”
According to Al-Tayyar, construction companies will try to cover its losses by increasing prices, with commercial buildings and residential units already maintaining a rising cost graph.
“I feel, some traders will increase the prices dramatically to benefit from this decision,” he said.