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RIYADH: Saudi Arabia may lower its value-added tax from its current 15 percent rate to 10 percent to counter a slowdown in the Kingdom’s non-oil economy in the second half of the year, according to Riyadh Capital Chief Investment Officer Hans-Peter Huber.

The rate was raised from 5 percent in July 2020 to support increased government spending in response to COVID-19.The increase in VAT to 15 percent was a temporary measure and will be returned to between 5 percent and 10 percent within one to five years, once public finances have been returned to balance, Crown Prince Mohammed bin Salman said in a television interview in April.

The rise in oil prices will reflect positively on Saudi GDP and will help the Kingdom recover its foreign reserves, Huber said in an interview with CNBC Arabiya on Thursday.

Foreign exchange reserves will increase this year and the next year, he said. The trade balance will improve and “we will witness a large surplus during this year or higher next year, and this will compensate for any capital outflows,” said Huber.

The economy will expand about 3.5 percent in the third quarter of the year and the same in the final quarter, leaving it about 1.5 percent higher over the year, followed by a 5.6 percent gain in 2022, he said.

The Saudi economy is affected by higher oil prices two-fold, he said: it encourages the Saudi government to increase spending, with a positive knock-on effect for the non-oil economy; higher oil prices are a sign of lack of supply, and this will allow OPEC and the Kingdom, in particular, to gradually increase their production.

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