Source: Shoura council rejects income tax legislation

The Saudi Shoura Council, a 120 member advisory body, without binding legislative powers, shot down a bill on Sunday that would have levied a 10% income tax on expatriates and a corporate tax on both foreign and Saudi companies in the Kingdom, a source close to the council informed Arabian Business.

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By  Massoud Derhally Published  January 13, 2003

The Saudi Shoura Council, a 120 member advisory body, without binding legislative powers, shot down a bill on Sunday that would have levied a 10% income tax on expatriates and a corporate tax on both foreign and Saudi companies in the Kingdom, a source close to the council informed Arabian Business.

“The rejection by the Shoura was on the levy of non-Saudis salaries for so many reasons. Combined together, various members of the Shoura council had various views. Some of them believed that this is not the time for this due to the geopolitical and economic situation globally,” said the source, who spoke on condition of anonymity.

“Some of them believe that this will hamper the competitiveness of the Saudi economy. Some believe it is not fair that you have to levy taxes on Saudis and non-Saudis — you should not discriminate. Their reason being is that zakat is an act of worship to God and it was not meant to be collected and used by the government. You have various reasons and arguments and all of them collaborated together and we have this strong rejection of the proposal,” the source added.

Currently, Saudi companies and individuals only pay zakat or alms, which amounts to 2.57% of annual income, as stipulated in Islam. Foreign companies pay an annual corporate tax, but foreign workers don’t pay an individual income tax.

Himud Al Bader, the council’s secretary general, told the Saudi Press Agency that council members found it, “unsuitable to tax the income of individuals regardless of their wage bracket.” Of the 120 members, 73 voted against the legislation, which has now reverted to the financial committee for redrafting.

In April 2002, Saudi Arabia announced it was considering levying a 10% income tax on expatriate workers, a figure far above the 2.5% that was originally mooted. The plan under discussion in the Shoura proposed that the tax should be levied on all those expatriates earning more than SR3000.

Experts tell Arabian Business that the primary motive behind the original proposal is to promote workforce localisation and not to raise money to pay down the public debt. The government’s thinking is that of the 7 million expatriates working in the Kingdom, between 1.2 and 1.4 million are in ‘clerical’ jobs earning an average of around SR4000 per month. Unofficial figures indicate foreigners remit around SR70 billion to their countries annually.

“What they were demanding is that they have a corporate tax before an income tax. They think that whatever income taxes will be levied on foreign employees, most likely employers will absorb it, especially for certain jobs,” a Saudi economist told Arabian Business.

“Eventually, whatever tax is levied, it will be passed on to the consumer and whatever gain it may generate, will be limited. It will increase the cost of hiring of a foreign employee if the employer is going to shoulder the tax. What has been argued is that at this point it is important to have a corporate tax and maybe not across the board, but for the larger corporates, which have a turnover of SR100 million and over,” added the economist.

According to sources, the corporate tax has been strongly protested by lobbies outside the Shoura council who have influence on the government.

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