Saudis announce new tax rate for Aramco amid plans for IPO

Apr 05, 2017, 00:48
Saudis announce new tax rate for Aramco amid plans for IPO

Aramco's tax saving in 2017 could be around $47 billion, based on the above calculation.

At present, the government takes money out of its biggest cash cow at three separate points: a royalty on revenue, tax on its income and a dividend.

Saudi officials expect the world's most valuable firm to be worth more than $2 trillion when it goes public.

"By drastically reducing the tax rate, more cash will go to the potential owners of Saudi Aramco compared to the government", said Espen Erlingsen, vice-president for analysis at Rystad Energy, an oil and gas consulting service based in Oslo and NY.

Oil companies in Saudi Arabia have been given a tax cut of 35 per cent following a royal decree issued by King Salam Bin Abdulaziz, the local WAS news agency reported yesterday.

This story has not been edited by Firstpost staff and is generated by auto-feed.

The tax rate for investments exceeding 375 billion riyals ($100 billion) will be 50 percent, SPA said. The government is embarking on an overhaul of its economy to move away from heavy reliance on oil, its main export, after a sharp drop in prices.

Saudi Aramco is the world's biggest oil company and is owned by Saudi Arabia. Assume that the world's largest single oil producer pumps 3.8 billion barrels this year, which it sells at an average price of $53 per barrel, or just over $200 billion. Under the new tax rate, much of the company's payments to the government are expected to be in the form of dividends, not tax.

Talks are ongoing between the companies known as Sinopec and Saudi Aramco, Wang Yupu, chairman of the Chinese refiner, said on Monday.

"The Royal decree concerning taxes is in the interest of the Kingdom, its citizens and future generations", said Minister of Energy, Industry and Mineral Resources Khalid Al-Falih.

"It shows the Saudi government is serious about the IPO of Saudi Aramco, and this is a very strong message to those who doubted that the government will follow through on taking Aramco public".

That figure jumps to 85 percent tax on producers with invested capital that does not exceed $60 billion.

SPA did not say whether the announcement was directly related to national oil giant Saudi Aramco.

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