Saudi Arabia is cutting the tax rate on Aramco to 50 percent from 85 percent in a bid to attract international investors for next year's planned IPO of its oil giant and raise its valuation for the process.
A royal order introduces a new tax regime for all hydrocarbon producers operating in the Kingdom, Aramco said in a tweet, adding that the tax rate for Aramco has been slashed to 50 percent.
The high tax rate was one of the main reasons why international industry experts have not been valuing Aramco nearly as high as the $2 trillion Saudi officials have been claiming.
"The new tax rate will bring Saudi Aramco in line with international benchmarks," Saudi Aramco president and chief executive Amin H. Nasser said in an Aramco statement, commenting on the royal order.
In January this year, Nasser told Bloomberg Television in an interview that Saudi Arabia would definitely change the fiscal regime and taxes in order to align Aramco's with that of other listed companies.
While the lower tax rate could spur investor interest, it could also reduce revenues for the Saudi government, some have argued.
Following the royal order, Saudi finance minister Mohammed Al-Jadaan said in a statement today that the lower tax would not hurt government finances.
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"Any tax revenue reductions applicable to hydrocarbon producers operating in the Kingdom are replaced by stable dividend payments by Government-owned companies, and other sources of revenue including profits resulting from investments," Al-Jadaan said.
"The 50 percent tax rate will be very lucrative to investors who should be gearing up for its privatization. This is one of many steps that will begin a process of investor-friendly initiatives that will help in whetting appetites," John Sfakianakis, director of economic research at the Gulf Research Center Foundation in Riyadh, told Bloomberg in an emailed comment on the issue.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More