KSA income tax plan meets with resistance

The Shoura Council rejects the proposal to tax expatriates, describing it as unfair and a threat to Saudi Arabia’s economic competitiveness

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By  Massoud Derhally Published  February 5, 2003

|~||~||~|Saudi Arabia’s Shoura Council, a 120 member advisory body without binding legislative powers, shot down a bill last month that would have levied a 10% income tax on expatriates and a corporate tax on foreign and Saudi companies in the Kingdom. A source at the Shoura, who spoke on condition of anonymity, said that the bill was shot down, “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.
“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. You have various reasons and arguments and all of them collaborated together and we have this strong rejection of the proposal.”

Currently, Saudi companies and individuals only pay zakat, which amounts to 2.5% 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 the 10% income tax on expatriate workers. The plan under discussion in the Shoura proposed that the tax should be levied on all those expatriates earning more than SR3000 per month.

Experts tell Arabian Business that the primary motive behind the original proposal was to promote workforce localisation and not to raise money to pay down the public debt. It was believed that employers themselves would absorb the tax, making foreigners more expensive to hire and thus closing the wage gap between Saudis and expatriates.

Of the 7 million expatriates working in the Kingdom, between 1.2 and 1.4 million are in ‘clerical’ jobs that the government feels could be done by Saudis, who tend to shun menial work. Unofficial figures indicate that foreigners remit around SR70 billion to their countries annually. At least one senior Saudi economist believes that the income tax proposal was the wrong idea and that the taxation debate should have instead focused on corporates.

“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,” said the economist. “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.”

According to sources, the corporate tax has been strongly protested by lobbies outside the Shoura council who have influence on the government. Tax is just one item that is being debated as the country grapples with a huge budget deficit, over dependence on oil and huge unemployment amongst nationals.||**||

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