29 March, 2017
King Salman decreed a new set of income tax rates on oil companies working in the kingdom, ranging from 50 per cent to 85 per cent depending on the firms' investments.
The reduced tax rate announced by Saudi Arabia could add $1 trillion to Aramco's valuation, according to Rystad Energy. Saudi authorities had been considering such a change for months, sources told Reuters.
Saudi authorities plan to sell shares in Aramco next year and have been considering whether to cut the effective tax rate on the company in order to facilitate the sale.
Some estimations place the value of the potential IPO at nearly Dollars 2 trillion, potentially the biggest IPO in history.
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"This Royal Order on tax for oil and hydrocarbon producers operating in the Kingdom brings the Kingdom of Saudi Arabia in line with global benchmarks", said Saudi Arabia's Energy Minister Khalid Al-Falih in a statement.
Aramco told CNNMoney in January that its IPO is still on schedule for 2018 and the company recently tapped a small US investment bank to be the offering's sole independent adviser. On Monday, China Petroleum Corp., known as Sinopec said it had been invited to take a stake in the operation and that talks were ongoing. "For the next step, we will deepen our communication and cooperation".
"Any tax revenue reductions applicable to hydrocarbon producers operating in the kingdom are replaced by stable dividend payments by government-owned companies, and other sources of revenue including profits resulting from investments", he said in a statement. The firm has not revealed its post-IPO dividend policy. The government would remain the company's largest shareholder. "With the old tax system, around 88 percent of the value went to the government through taxes and royalties, while with the new system around 60 percent of the profit goes to the government", Erlingsen said.
Industry executives have said the IPO will help Aramco, one of the country's most efficient state enterprises, expand its business in line with market principles and form partnerships with private-sector companies around the world.