IMF Urges Saudi Arabia to Deepen Tax Reforms

Morocco Cited as Benchmark for Property Tax Potential

The International Monetary Fund (IMF) has issued a strong recommendation for Saudi Arabia to bolster its internal revenue generation. A recent report highlights the kingdom’s economic resilience but identifies significant opportunities for fiscal reform, with Morocco serving as a point of comparison for potential property tax yields.

Key Recommendations for Fiscal Enhancement

The IMF’s annual report, released in early August, commends Saudi Arabia’s robust economic performance. It notes a 4.5% growth in non-oil GDP for 2024, controlled inflation, and a notable decrease in the national unemployment rate. However, the report emphasizes the need for the kingdom to intensify efforts in resource mobilization.

Specific suggestions include eliminating VAT exemptions on housing purchases and real estate transactions, introducing personal income tax, reforming corporate taxation, and reviewing exemptions within special economic zones. The widespread adoption of electronic invoicing and risk-based audits is also encouraged.

Property Tax: A Focus Area for Revenue Growth

A cornerstone of the IMF’s recommendations is the implementation of a recurring property tax. The fund estimates that such a tax could generate between 1.0% and 1.4% of Saudi Arabia’s GDP. The report explicitly references Morocco’s experience, stating:

“Morocco lifts 0.95 % of its GDP by means of this tax – a level close to the European average – which could constitute a reasonable reference for Saudi Arabia.”

—International Monetary Fund

This comparison underscores Morocco’s success in establishing a land tax system that yields measurable and stable revenue. The IMF views this as a key indicator of the substantial revenue potential available to countries in the region through property taxation.

Broader Fiscal Strategy

Beyond property taxes, the IMF proposes several other measures to strengthen Saudi Arabia’s fiscal position. These include revising VAT exemptions, introducing targeted excise taxes on luxury and environmentally harmful goods, and accelerating the reform of energy subsidies, which currently represent an estimated 3.5% of GDP. A reassessment of the economic efficiency of long-term investment projects is also advised.

Collectively, the IMF projects that these suggested tax and budgetary adjustments could increase revenues by 6.6% to 8.5% of GDP, or 8.7% to 11.3% when excluding hydrocarbon revenues. This would contribute to a credible and sustainable strategy for improving public finances.

The inclusion of Morocco as a model in the IMF report highlights the kingdom’s capacity to implement fiscal policies that generate consistent income streams. This strategic reference offers valuable insights for Saudi Arabia as it navigates its economic diversification and revenue enhancement plans.

Globally, many nations are exploring property taxes to fund public services. For instance, in the United States, property taxes are a primary source of revenue for local governments, funding schools and infrastructure. In 2022, U.S. state and local governments collected approximately $600 billion in property taxes (U.S. Census Bureau 2023).