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Manufacturers are breathing a sigh of relief after the cabinet scrapped expat levies on licensed industrial facilities permanently.
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BACKGROUND- The levy went into effect in 2018 to be used as a triple-threat tool in the fiscal balancing stack. The pitch was that it would generate an urgent non-oil revenue stream to plug the widening budget deficit, promote Saudization by increasing the cost of hiring cheaper expat workers, and serve as an “inefficiency tax” that pushes facilities to adopt automation and advanced tech.
The levy didn’t last long for the industrial sector anyway: The government decided to waive the fees for licensed manufacturers for five years in late 2019, saving thousands of facilities an estimated average of SAR 1 bn annually as of last year.
The reason? Taxing manufacturers can harm industrialization targets. Industry Minister Bandar Alkhorayef says the waiver — which the government kept extending in short bursts every time the deadline drew near — allowed the number of facilities to jump from some 8.8k to over 12k in the last six years, and industrial investments to grow north of SAR 1.2 tn.
Why it matters
Manufacturing in Saudi relies heavily on skilled foreign labor, not easily replaceable with local talent as in other sectors such as retail or construction. The looming expiry of the waiver on 31 December 2025 was hanging over manufacturers’ heads because most facilities employ more expats than Saudis, putting these facilities in a tier that pays even higher rates than Saudi-dominated facilities under the defunct regime.
📊 A single expat factory worker would have cost a facility SAR 800 mn per month if the fees had been reinstituted. That’s some SAR 7.8k every single year.
Getting rid of the levy for good should lower projected operating costs, allowing factories to worry less about potential labor costs and spend more freely on expansion, automation, and advanced tech, Alkhorayef said.
