"Saudi Aramco's tax rate is reduced from 85 percent to 50 percent, bringing it in line with global benchmarks", the government-owned oil giant said on its Twitter account following the decree. Deputy Crown Prince Mohammed bin Salman, who leads economic reforms, has said the IPO will value Aramco at a minimum of $2 trillion.
The reduced tax rate announced by Saudi Arabia could add $1 trillion to Aramco's valuation, according to Rystad Energy. Assume that the world's largest single oil producer pumps 3.8 billion barrels this year, which it sells at an average price of $53 per barrel, or just over $200 billion. Aramco's tax saving in 2017 could be around $47 billion, based on the above calculation.
The royal decree published Monday said companies investing more that 375 billion riyals ($100 billion) will be subject to a 50-percent tax rate.
However, low oil prices could lessen the appetite of major investors, which has seen Saudi Arabia overspend by $79 billion a year ago. Previously, Aramco had paid 85 percent tax, plus a 20 percent royalty levied at a different stage; the decree did not mention the royalty. "This change implies more money is left for Saudi Aramco, which makes the company more attractive for investors". Some experts have been more conservative, valuing Aramco below $1 trillion.
Oil tanks seen at the Saudi Aramco headquarters during a media tour at Damam city November 11, 2007.
Energy Minister Khalid al-Falih also said the royal order will not negatively affect state coffers, adding that the kingdom's hydrocarbon resources "remain sovereign".
Companies with total capital investments ranging from 225-300 billion Saudi riyals ($60-$80 billion) would be taxed at 75 per cent, while those will lower total capital investments would pay 85 per cent tax.
Saudi Arabia is eye tax changes which are stacked to heavily benefit the IPO of the state oil producer.
He said any tax revenue reductions "are replaced by stable dividend payments by government-owned companies, and other sources of revenue including profits resulting from investments".