When Saudi Arabia tightens belts, OFWs feel the noose



IT came upon a midnight clear.

Christmas season it was, a time for family gatherings and sharing the fruits of one’s labor. Except that for the Overseas Filipino Workers and their families in the Middle East, especially in Saudi Arabia, family togetherness is not on the kingdom’s agenda.

Not when the Palace coffers are getting less gold, less dollars.

Not when the price of oil has plunged to the lowest level in years and the budget deficit seems to have ballooned sky-high.

Not when, despite the monarch’s order to stop foreign workers dependency, not many Saudi citizens and nationals take up the slack to keep the oil flowing.

Not when, despite an agreement to cut oil production to regain levels of oil income, the price of oil basically remains stagnant as non-OPEC members and countries like the United States and Canada fill the gap.

So when the kingdom’s guardians of the wallet crafted the budget for 2017 and the years beyond, it became apparent that Saudi Arabia will be tightening its belt.

In 2014-2015, oil prices collapsed, slashing the kingdom’s main source of revenue – 77 to 88 percent of its income. The dawning of low prices gave rise to a huge deficit in Saudi Arabia’s budget. For the first time, in 2007, non-Saudi and even Saudi-based news sources reported that the Saudi government had to declare the big income vs. spending gap.

Even more scary, the Saudi government was forced to draw on its foreign reserve and issue bonds.

Saudi Arabia may lack water and other resources, but it has oil. Billions and billions of barrels underneath the desert producing 10.3 million barrels a day–-more than 7 million exported to keep the Kingdom alive and 10.3 million barrels consumed at home, partly to keep the citizens, national and residents happy through subsidies.

Billions of barrels of liquid gold buried deep in the ground have to be pumped to the surface. After millions of years absorbing energy from the sun, microscopic plants and animals sank to the bottom of the sea turning into bacteria getting deeper and deeper and closer to the earth’s core.

Heat and pressure force the millions of bacteria, now turned biomass, to become oil or natural gas. Migration back to the surface comes naturally. Some escape through the earth’s pores, but most of the raw fuel remains deposited underneath, trapped–waiting to be tapped.

And tapped they were, fueling the growth both of the First World nations and the oil producers in the Middle East–Saudi Arabia, Iraq, Kuwait, Libya, Qatar, Iran and the United Arab Emirates which was the de facto coalition, or more aptly, “co-oil-ition.”.

And that’s what foreign workers are for.

Subjects of the kingdom are a pampered lot, with subsidies provided by oil income to keep them happy, peaceful and trouble-free.

Remember Osama bin Laden, the son of a billionaire construction magnate with ties to the Saudi royal family, who funded and launched the World Trade Center terrorist attack on September 11, 2001, killing 2,996 and wounding more than 6,000?

Oil prices dropped for more than a decade–1980 to 1990–reducing the stranglehold of the Saudis on oil production and exports. At the same time, the price to keep peace at home and in the region–-including Saudi Arabia’s participation in the 1991 Gulf War–strained the kingdom’s income stream.

In 2004, the official reports show that “one in every two Saudis was less than 15 years old, and an estimated 60 percent of the population was under the age of 20. The kingdom has also experienced tremendous growth in population size, growing from roughly 6 million in 1970 to 23 million in 2003”

The social programs designed to keep the emergent demographics of Saudi Arabia have become increasingly expensive and untenable. The youth–citizens and nationals–must be taught to participate in tapping the trapped oil and exploring alternative sources of energy. Otherwise, not only will the kingdom continue to be dependent on foreign workers but also on oil.

Saudi Arabia monarchs have acknowledged this scenario since the early 1930s when Saudi rulers started promoting the participation of locals in the workforce. The goal was named “Saudization,” an attractive–-if elusive–-goal.

After all, why work if money–and whatever else money can buy–comes in the form of subsidies?

More recently, small- and medium-sized business owners, with whom enforcement of Saudization was not as strictly applied, have started to protest that these measures place unfair pressure on them to hire more expensive local workers. Some expatriate communities have asked the government to recognize the value of their work and to continue to allow them access to the Saudi labor market

As the local population was not meeting the manpower needs necessary for these projects, employers began to recruit skilled and low-skilled workers mostly from South Asia and Southeast Asian nations, including the Philippines.

The Migration Policy Institute report of November 2004 shows that “Saudi Arabia has between 1 and 1.5 million expatriates each from Bangladesh, India, and Pakistan, and around 900,000 workers from the Philippines. Together, these communities account for over half of Saudi Arabia’s expatriate population. Migrants from nearby and neighboring countries, especially Yemen and Egypt, also constitute a large part of the kingdom’s expatriate community. Western expatriates number around 100,000. According to respective embassy estimates, about 40,000 are from the United States, and about 30,000 are from the United Kingdom.”

And they are sending money back home. Remittances, for example, constitute approximately 10 percent of the Philippines’ gross domestic product. Remittances have spawned construction at home, mainly of malls, condominium cities and housing projects.

POEA statistics show the number of OFWs Deployed to Saudi Arabia, New Hires and Rehires, from 2005 to 2015. Should these new hires become re-hires and new ones added, they would have to pay the expat levy fee–if they want to have their families (dependents) with them in the kingdom.

OFWs Deployed to Saudi Arabia
Former Shoura Council member Husam Al-Angari, was quoted in Arab media as saying that “expats’ remittances had almost tripled since 2004, having increased from $15.1 billion (SR57 billion) to over $36 billion (SR135 billion) in 2013. The World Bank claims Saudi Arabia accounts for the second highest volume of remittances after the US, with $37 billion in 2015.”

To partly finance subsidies, Al-Angari was reported to have proposed a 6 percent tax on remittances of expatriates for their first year of living in the Kingdom, decreasing to 2 percent in the next five years. Mindful that foreign workers are still needed to man the pumps the proposed tax or remittances had been shelved temporarily.

In its place, the budget ministry will impose taxes on dependents of about 11,660,998 expatriates, OFWs included.

Arab News indicates the number of expat dependents under 19 years of age in 2016 at 2,228,525.

“The monthly fees that will be collected for these dependents will be around SR222, 852,500 per month. In the first year of its implementation in 2017, an expat worker will have to pay SR100 for each of his dependent every month. In 2018, the fee will increase to SR300-SR400 per dependent per month. This will rise annually to reach SR800 per month per dependent by 2020.”

When Saudi Arabia announced its 2017 budget, it became clear that expats would have to live with paying taxes for dependents with them in the kingdom. The expat levy will be introduced starting this year with charges of to SR800 per worker by 2020.

Here is what the new expat levy will cost, the Arab News reported:

In 2017 – Dependents of expats will each incur a monthly fee of SR100, from July onwards

In 2018 – Dependents of expats will each incur a monthly fee of SR200, from July onwards. In companies where the number of foreign employees is equal to or lower than the number of Saudis, a monthly fee of SR300 will apply from January onwards. If the number of foreign employees exceeds the number of Saudis, a higher monthly fee of SR400 will apply from January onwards.

In 2019 – Dependents of expats will each incur a monthly fee of SR300, from July onwards: SR500 monthly if foreign workers are equal to or less than the number of Saudis, otherwise a higher SR600 monthly fee will apply

In 2020 – The same monthly fee structure will apply to dependents of expats: SR400. Companies with foreign workers equal to or less than Saudis, SR700 monthly fee; otherwise, the higher monthly fee of SR800 will apply from January onwards.

As a soothing balm, the Saudi Finance Minister Mohammed Al-Jadaan told reporters in Riyadh that “these fees do not apply to domestic helpers, such as drivers and cleaners, but only to expats working in commercial entities”. As a clincher, the finance minister ruled out income taxes on Saudi nationals, foreigners or company revenues.

Arab news and non-Arab news sources show that despite the levy and willingness of foreign workers to accept reduced salaries, Saudi Arabia will be the top destination for overseas employment.

A silver lining: the kingdom is toying with the idea of offering permanent residency to OFWs who stay for five years. But the Ministry of Budget is silent on whether taxes will continue to be imposed and, most fearsome of all, at increased levels.

So for the next Christmases, OFWs have to choose between paying more to be together with their families in Saudi or be apart but send more and visit often.

Either way, it will be taxing.


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