"These economic reforms have the potential to bring important change in remittances to Pakistan, at least in the short run. The most important is the job nationalization drive, which aims to replace expatriate workers with Saudi citizens," the SBP said in its recent report. Remittance inflows from Saudi Arabia declined by 7.5 percent to $2.5 billion in H1FY18. The share of Saudi Arabia in total inflows in H1FY18 has also declined to 26 percent from 29 percent last year; this trend is expected to continue going forward as well due to a tough regulatory climate for migrant workers in the kingdom.
This decline in inflows may become stronger going forward, after the imposition of Value Added Tax (VAT) from January 1, 2018 in both KSA and UAE. Inflows are expected to recover from other GCC countries, particularly Qatar, Bahrain and Oman as these GCC members have publicly announced a temporary deferment of the VAT.
The key measures under job nationalization program in Saudi Arabia included new tax on expatriates, increase in tax rate on foreign employees and VAT.
From July 2017, the Saudi government imposed a new tax of SAR 100 per dependent per month on expatriates and their dependents. This tax is expected to increase gradually every year until 2020. The tax amount has doubled to SAR 200 from January 2018, and will increase to SAR 300 in 2019 and to SAR 400 by 2020.
From January 2018, the tax rate of SAR 200 per foreign employee per month has been increased to SAR 300 on private companies, hiring equal number of expatriates and Saudi workers. This rate will increase to SAR 500 per employee per month in 2019 and to SAR 700 in 2020.
Companies employing more foreign workers than Saudi nationals are required to pay SAR 400 per employee per month in 2018. This tax is expected to increase to SAR 600 in 2019 and SAR 800 in 2020. Generally, the additional tax for hiring more foreign workers used to be waived in the past. However, no waiver is allowed under the new tax regime. In addition, Saudi Arabia, along with the United Arab Emirates, has introduced VAT at the rate of 5.0 percent from January 2018. The VAT has been imposed on most wholesale and retail sales, including on food consumed at restaurants. This tax is likely to increase the cost of living for unskilled lower income foreigners in KSA and UAE.
Saudi Arabia generally hires semi-skilled or unskilled labour from Pakistan. The VAT, being regressive in nature, is expected to affect the savings of the unskilled labor force, which will force them to send lower amounts back home.
Lastly, the Saudi government has removed the driving ban for women from September 26, 2017. From Pakistan''s perspective, this step will have repercussions, as the demand for foreign drivers is likely to decrease, going forward. According to the SBP, though the new taxes will affect all expatriates equally, the imposition of levy on dependents and higher taxes on the companies employing foreign workers will affect the skilled and high skilled workers the most; these are the jobs for which Saudi citizens prefer competing with foreigners.
Therefore, a large number of people with ''white collar'' jobs will be forced to either send their families back home or quit their jobs permanently and return to Pakistan.