The Kingdom of Saudi Arabia has launched a royal decree, which will slash oil giant Aramco's income tax rate to 50%. Aramco has been paying an 85% income tax in addition to a 20% royalty levied at a different stage.
However, there was no mention in the decree of any amendments to the 20% royalty levy, according to a Reuters report.
The tax cut announcement makes the imminent Aramco IPO, whose market value some analysts estimate at $2tn (£1.6tn), even more enticing. The petroleum firm is considering the IPO launch in 2018.
Aramco could potentially surpass Alibaba as the world's largest IPO. The Chinese ecommerce firm was evaluated at $25bn on September 2014.
Amin Nasser, Saudi Aramco's President & CEO, remarked on the royal order: "We thank the Custodian of the Two Holy Mosques King Salman ibn 'Abd Al-'Aziz Al Sa'ud for the Royal Order announcing the reduction of Saudi Aramco's tax rate to 50 percent from 85 percent. The new tax rate will bring Saudi Aramco in line with international benchmarks."
He also mentioned that Saudi Arabia would strive to diversify and grow its economy in line with the Saudi Vision 2030 mission statement.
Aramco is considering a stake sale of 5% as part of the diversification strategy. Shares will be listed on Tadawul, the Kingdom's domestic stock exchange, and an international exchange.
London, New York, Hong Kong, Tokyo, and Singapore have been aggressively courting Aramco for the stock exchange listing.
Recently, Nasser attended the China Development Forum on March 19 where proposals were made on China's cooperation in Aramco's possible diversification strategies.
The firm's "Crude-to-Chemicals" initiative was highlighted as an option during the event in order to improve the processing of crude oil.
The CEO also signed two memoranda of understanding with China North Industries and Aerosun Corporation.