Question

Kingdom of Saudi Arabia (KSA) now moving to achieve its Vision 2030. In 2020, the government has announced the budget spending which indicate a slightly higher deficit compare to 2019 budget.
a- Explain the reason for the budget allocation and how the government will finance this expenditure for 2020.
b- Explain the budget process of Kingdom of Saudi Arabia and compare with the USA government.
c- The government has recently introduced value added tax (VAT). Explain two reasons why the VAT is implemented in this country.
d- ExplaintheimpactofVATtoconsumerspendingandbusiness.
e- The government is planning to change its modified accrual basis to accrual basis. Do
you think this is a good practice? Explain your reasons.

Answer 1

Answer to (a)

The deficit budget is considering the decreased crude price which again came down to a lower range as the Covid 19 hit the world. The major revenue source of KSA is from the sale of crude and the price fluctuations will influence the budget. As the global demand of crude is down due to the recent hit of Covid 19 across the world, the deficit has increased and the government shall find a way to cope with it.

As this is the scenario, KSA shall focus on tightening the fiscal policy so as to fill the deficit. Also, increasing spending efficiency and empowering private sector to increase the employment are another measures adopted to cope with the same.

Answer to (b)

The executive authority is the one who conducts both budget preparation and approval phases in Kingdom of Saudi Arabia, unlike other countries where the authority is with the parliament. Starting from the month of January the ministry of finance communicates with other departments and asks for their expenses and other financial details along with their proposals.After analyzing the two drafts of the budget, the royal approval of the budget is initiated in the last week of December.

Where in USA, By the first Monday of February itself, the President submits the budget to congress which contains the estimate of income and spending of federal government for the upcoming fiscal year.

Answer to (c)

Increase the revenue of Government - Obviously the revenue is one of the major objective of introduction of VAT.

Reduce Consumption of harmful goods - The products whose overconsumption is harmful for the health and society are brought into the regime and therefore the price would increase for the same. This would though theoretically help to reduce the consumption.

Answer to (d)

The consumer spensing shall decrease as the introduction of VAT would increase the price of the products. The Demand for the product shall decrease as the price increases.

The business also shall find it a little hard to adjust with the system in earlier stage and the requirement to be complied with the rules and regulations regarding the VAT regime shall also increase the investment in time and people. The decreased consumption due to higher price if any shall also impact the business.