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Saudis announce new tax rate for Aramco amid plans for IPO

Saudis announce new tax rate for Aramco amid plans for IPO”

In a move thought to be meant to boost state-owned oil company Aramco ahead of an expected Initial Public Offering, Saudi Arabia announced tax cuts for oil and hydrocarbon producers on March 27.

Some estimations place the value of the potential IPO at nearly Dollars 2 trillion, potentially the biggest IPO in history.

While those with total capital investments of between 300-375 billion Saudi riyals ($80-$100 billion) would be taxed at 65 per cent.

Sanford C. Bernstein & Co, which uses a different method to evaluate Aramco-enterprise value per flowing barrel-is putting the value of the Saudi company between $1 trillion and $1.5 trillion, according to Reuters.

The Saudi government announced Monday that it's reducing Aramco's tax rate to 50 percent from 85 percent, as it prepares to offer investors as much as 5 percent of the world's biggest oil exporter in what could be a record IPO. China's e-commerce business Alibaba Group Holding Ltd. has claim to the world's biggest IPO to date after raising $25 billion in 2014. Many private analysts have been sceptical, making estimates below $1 trillion, but a 50 per cent tax rate could bring the offer closer to $2 trillion.

Saudi finance minister Mohammed Al-Jadaan said the tax change would support the kingdom as it becomes a "global investment powerhouse".

Others remain sceptical about the prince's plans to shift the country away from its reliance on oil due to general lethargy in government and conservative attitudes at large. The valuation of Saudi Aramco heavily depends on the tax regime, and how the profit is being split between the government (through taxes and royalties) and the owners, it said. The corporation has not revealed plans for its post-IPO dividend policy.

"This tax change has a huge impact", Rystad wrote in a report on Tuesday. "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. "This is one of many steps that will begin a process of investor-friendly initiatives that will help in whetting appetites", he said.



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