Saudis Ara­bia said to weigh oil price linked tax for Aramco be­fore IPO

Muscat Daily - - BUSINESS -

Lon­don, UK - Saudi Ara­bia is con­sid­er­ing a flex­i­ble tax sys­tem for state-owned oil com­pany Aramco that would in­crease roy­alty pay­ments when crude prices rise, ac­cord­ing to peo­ple fa­mil­iar with the de­lib­er­a­tions.

Riyadh is mulling a pro­posal from Saudi Aramco to re­place the cur­rent fixed roy­alty on rev­enues, the same peo­ple said, ask­ing not to be named.

Aramco has pro­posed to ini­tially set the roy­alty at 20 per cent - the same rate as to­day’s fixed rate - and in­crease it au­to­mat­i­cally if oil prices rise sig­nif­i­cantly.

The Saudi gov­ern­ment hasn’t yet de­cided whether to go ahead with the flex­i­ble roy­alty and it could de­cide against it, one of the peo­ple said. On top of the roy­alty, Saudi Arabian Oil Co, as Aramco is for­mally known, pays in­come tax on profit, which the gov­ern­ment re­cently cut to 50 per cent from 85 per cent.

The king­dom aims to list about five per cent of Aramco in an ini­tial pub­lic of­fer­ing (IPO) in the sec­ond half of 2018. While a flex­i­ble levy would help the king­dom to raise ex­tra rev­enue if oil prices climb, it’s likely to prove un­pop­u­lar with po­ten­tial in­vestors as it would re­duce their ex­po­sure to higher prices.

The Saudi Min­istry of Fi­nance di­rected ques­tions on the flex­i­ble roy­alty to Saudi Aramco. The com­pany de­clined to com­ment.

Saudi Ara­bia re­lies heav­ily on oil for its fi­nances and has an eco­nomic pro­gramme, dubbed Vi­sion 2030, to break free from hy­dro­car­bons. Still, oil will ac­count for roughly 70 per cent of to­tal gov­ern­ment rev­enue this year, ac­cord­ing to the In­ter­na­tional Mon­e­tary Fund (IMF). With oil trad­ing around US$50 a bar­rel, the coun­try’s is strug­gling to balance the books - the IMF projects a fis­cal deficit of 9.3 per cent of the gross do­mes­tic prod­uct, down from 17.2 per cent in 2016.

A price-linked tax­a­tion sys­tem isn’t un­usual in com­modi­ties as gov­ern­ments seek to pro­tect the in­dus­try from down­turns while shar­ing in the bumper prof- its of bull runs. The UK, for ex­am­ple, uses a sim­i­lar model for oil pro­duc­ers in the North Sea. Rus­sia also varies tax rates with oil prices and the Aus­tralian gov­ern­ment has pro­posed in the past price-linked taxes for iron ore pro­duc­ers too.

In the past, Saudi of­fi­cials have said the flota­tion would value Aramco at as much as US$2tn, mak­ing it the world’s largest com­pany by mar­ket value. On that ba­sis, sell­ing just five per cent could raise US$100bn, rank­ing it as the IPO the big­gest ever.

How­ever, an­a­lysts have cau­tioned that Aramco is more like to be worth about US$1tn not­ing that other na­tional oil com­pa­nies that have sold shares have achieved rel­a­tively low val­u­a­tions com­pared with the size of their oil re­serves.

Newspapers in English

Newspapers from Oman

© PressReader. All rights reserved.