The reform announced this week has boosted analysts’ valuations for what will be a transformational initial public offering.

AFTER decades in which it hardly figured on the business horizon, tax is suddenly becoming a big issue in the Arabian Gulf. Not only are minds being concentrated over the introduction of value-added tax (VAT) at the beginning of the next year, but we saw earlier this week how matters of tax policy can drive global investor sentiment — and media coverage — with the announcement of a new tax regime for Saudi oil companies.

Although it was not mentioned specifically in the announcement, most of the attention was focused on the repercussions of the change for Saudi Aramco, the national oil producer that is being lined up for an initial public offering (IPO) on global stock markets some time next year.

The new regime would reduce the tax rate on Aramco from 85 to 50 percent, which is much more in line with the international standards. The move represents a normalization of tax treatment in the Kingdom and an essential step in the initiative to transform the national economy away from oil dependence.

But, for a measure that would seem to be of interest to a limited number of people mainly within the tax accounting profession, this one generated an enormous number of headlines, most of them begrudgingly positive. That is a change in itself.

All those issues are being steadily addressed, and the announcement this week settles the last problem in a stroke. Reducing the tax take will certainly cut government revenue, but it will replace it with a steady stream of valuable dividends once the IPO is complete.

By most calculations, the effect on government revenue will be fairly neutral, with incoming dividend balancing out the tax revenue foregone. As one hard-nosed commentator puts it: “The beauty of this plan is that it will leave Riyadh barely out of pocket.”

The big difference the change brings is on the bottom-line earnings of Aramco. By cutting the tax bill, the crucial line in the profit and loss account labeled “earnings per share” will get an enormous boost. This is the accounting item that is used as the basis for share valuations, and hence market capitalization.

The sound of financial estimates being revised upward was almost audible. Last month, the most pessimistic of the estimates so far put a value of $400 billion on Aramco, mainly because of difficulties in valuing reserves as well as the tax issue. The IPO would have pulled in a meager $20 billion — hardly worth the bother.

After the tax change, nobody was anywhere near that lowly range at all. Virtually all were upward of a total market capitalization well in excess of $1 trillion, with many as high as $1.5 trillion.