Effects of the Real Estate Transaction Tax on Saudi Arabia's Economic Cycles

Purpose: The purpose of this paper is to determine the effects of the Real Estate Transactions Tax (RETT) on the economic cycles of Saudi Arabia. A secondary purpose is to determine the effects of RETT on the construction and real estate sectors of Saudi Arabia. Research design, data and methodology: The data used is retrieved from the General Authority of Statistics, Saudi Central Bank and the World Bank Open Data. Econometric models of multiple linear regression with dummy variables have been conducted to achieve the objectives and to quantitatively verify the hypotheses. Results: With the VAT exemption in real estate transactions and its substitution with RETT, a positive effect on the economy and the real estate sector has been observed. However, this tax reform has not produced any significant effects in the construction sector. Conclusions: The main conclusion of the present research is that the real estate market has a major influence on economic cycles. After the tax reform, a reduction in the contribution of taxes on real estate transactions to GDP was detected. For the construction sector, after the tax reform, it is estimated that there will be an insignificant reduction in the contribution of the real estate price index, and of the taxes on real estate transactions, to GDP.