* Tax on company cut to 50 percent from 85 percent
* Sends signal that government determined on offer
* Dividends expected to replace tax in state revenues
* Tax cut brings Aramco in line with global standards -CEO
* Sinopec says will have talks on IPO with Aramco
(Adds Sinopec comments)
By Reem Shamseddine and Marwa Rashad
JEDDAH, Saudi Arabia/RIYADH, March 28 Saudi
Arabia's government has cut the income tax paid by national oil
giant Saudi Aramco to smooth the company's initial public offer
of shares next year, which is expected to be the world's largest
A royal decree on Monday, retroactive to Jan. 1, set a tax
rate of 50 percent for the firm. Previously, Aramco had paid 85
percent tax, plus a 20 percent royalty levied at a different
stage; the decree did not mention the royalty.
The step appeared likely to reduce Aramco's tax burden by as
much as tens of billions of dollars, which could make the firm
much more attractive to private investors. Saudi authorities had
been considering such a change for months, sources told Reuters.
"The royal order is a milestone in setting the stage for the
world's biggest IPO. I am sure there will be more such moves to
follow in coming weeks and months," an oil industry executive
"It shows the Saudi government is serious about the IPO of
Saudi Aramco, and this is a very strong message to those who
doubted that the government will follow through on taking Aramco
The government aims to sell up to 5 percent of Aramco,
listing the shares in Riyadh and at least one foreign exchange,
to raise cash for investment in new industries, as the kingdom
seeks to diversify its economy beyond oil exports in an era of
Saudi officials have predicted the IPO will value the
company at $2 trillion or more. Many private analysts have been
sceptical, making estimates below $1 trillion, but a 50 percent
tax rate could bring the offer closer to $2 trillion.
"This move carries strategic benefits for Saudi Arabia, its
citizens and future generations," Finance Minister Mohammed
al-Jadaan said in a statement about the tax cut.
As the biggest crude supplier to China, Saudi is also
trying to rope in China's oil companies as IPO investors.
Sinopec Corp said Aramco president had visited
the firm and both sides would have talks on the IPO.
"They (Aramco) believe China is a huge market. China
attracts them as a main driver for oil and gas demand growth.
They are hoping to involve us in the talk of the IPO," Wang
Yupu, chairman of Sinopec Corp, said during an earnings briefing
in Hong Kong late on Monday. "For the next step, we will deepen
our communication and cooperation."
The Saudi government, which is struggling to close a budget
deficit due to cheap oil that totalled $79 billion last year,
obtains over 60 percent of its income from oil, so the tax
change could affect its finances.
However, analysts said the measure might not have a big
impact since tax revenue was expected to be replaced by dividend
payments from Aramco. The firm has not revealed its post-IPO
"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," Jadaan said.
He said in a later statement to Reuters that the 2017 state
budget had been prepared with the tax change in mind, so
government revenues and public services would not be affected.
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.
Aramco Chief Executive Amin Nasser said in a statement that
the tax cut would help Aramco develop by bringing the company in
line with international benchmarks.
(Writing by Andrew Torchia, Editing by Dale Hudson and Himani