Expat levy has little impact on purchasing power, experts say

newsimageJEDDAH – The expat levy and some families’ decision to leave the Kingdom do not have a direct impact on the purchasing power in the economy, according to local experts. Certain companies in the private sector are carrying the cost of the new levy on their employees, either in full or in part. “Unlike on the outset, not many expats are planning to leave the Kingdom because of the new levy and they will weigh the cost of moving,” says Hattan Saaty, managing partner at Strategic Gears, a local consultancy firm that published a report this month revealing a research study on the revised expat levy and its impact on the economy. “It is unlikely that expats with families will leave immediately after the implementation of the levy, and based on the survey most of them are long stayers who have already created deep roots within Saudi Arabia, so the leaving decision isn’t an easy one,” says Saaty, adding that a number of expat high performers might expect salary increases in the coming years or other external factors positively affecting their income. According to the research surveying 1,500 male expats with families working in various occupations and different income levels, expats will consider the levy as too high when it reaches 15 percent of their salaries. With more than 11 million expats in the country, and more than 600,000 unemployed Saudis with an increasing unemployment growth rate, it’s expected that the government will start taking more drastic measures, according to the researchers. “We believe the expat levy would make expat hiring less attractive as it will reduce the average monthly wage gap between expats and Saudi employees from SR4,057 to SR3,257,” says Saaty. “In the long-term, the expat levy is positive for the labor market in several aspects, namely changing the business model in the private sector that relies on cheap labor and increasing Saudization that, in return, will increase the purchasing power of Saudi families.” The nationalization rate, or Saudization, in the private sector has been viewed as stagnant at around 17 percent over the past 5 years, despite nationalization programs such as Nitaqat as well as the previously introduced expat levy in 2015. On the consumption power, economists and businessmen view that expats will likely reduce their spending to cover the levy payment but will not affect the overall market. Responses by expat families in the study indicate an average expenditure of SR5,665 per month, compared to a Saudi family’s average monthly spending of SR15,367. Mohamed Alawi, CEO of Red Sea Mall and chairman of shopping centers committee at the Jeddah Chamber of Commerce and Industry, told Saudi Gazette: “Looking at the big picture, consumption by expats is much less than Saudis. The economy largely depends on the purchasing power of Saudis, pilgrims, and visitors.” Economists consider the levy to encourage more Saudis to be hired in shopping centers and shops. “The government has introduced this levy just like any other countries with foreign residents who pay taxes,” he added. The monthly revised levy starting from July 2017 remains lower than other countries that have a large number of expat labor. In the UK, the monthly expat levy stands at SR808, while in Singapore it stands at SR1,360. Asked about the purchasing power after the return of incentives of government employees, Alawi says Saudis are now more aware in rationalized spending and managing their budget than before the budget cuts last year. The Ministry of Labor and the Job Creation and Employment Commission plan to create 1.2 million job opportunities, aiming to create 450,000 jobs for Saudis in the private sector by 2020. The National Transformation Plan aims to increase the percentage of females in the workforce from 23 percent to 28 percent and reduce overall unemployment from 11.6 percent to 9 percent.