RIYADH, 7 May — If a draft bill to levy a 10 percent income tax on the earnings of foreigners becomes law, it is expected to net around SR6 billion ($1.6 billion) for state coffers, an economist said yesterday.
“I believe that within one to two years, the bill will be a good source of non-oil revenues,” according to Abdul Wahab Abu-Dahesh, senior economist at Riyad Bank.
“It will also help reduce unemployment among semi-skilled and unskilled Saudi labor because it will narrow the salary gap between Saudis and expatriates,” Abu-Dahesh said.
The Shoura Council on Sunday provisionally approved draft legislation requiring foreigners earning more than SR3,000 ($800) to pay income tax.
Mohammad Al-Qunaibet, head of the council’s economic affairs committee, explained that there has been no final approval of the 10 percent figure.
“The 10 percent has been proposed by the finance committee, but the council has not determined as yet a specific percentage,” Qunaibet said.
Qunaibet said that the council had completed debate on the bill. “It will be returned to the finance committee to assess the members’ remarks on the articles. It will then be sent back to the council where voting will be taken on each article,” he said.
The package of draft tax legislation — 75 articles — will become effective only after it is approved by the government, which has the power to issue new laws.
The council itself can only make recommendations.
The legislation is an amendment of a law issued 50 years ago stipulating that foreigners working in the Kingdom should pay income tax, which was never implemented.
Around seven million expatriates live in Saudi Arabia, five million of whom work in the private sector. Unofficial figures indicate foreigners remit around SR70 billion to their countries annually.
The new legislation being pushed through would also reduce taxes, from 45 percent to a maximum of 30 percent on the profits of foreign companies in an effort to lure the billions of dollars in foreign investment required to boost the economy.
“The legislation aims at reforming the structural defect of the budget and help reduce unemployment among Saudis. It will help make the domestic economy a tax-based economy. It may not be too long before Saudis themselves are included,” Abu-Dahesh said.
Gulf Arab nationals and companies are exempt from the proposed law because they, like their Saudi counterparts, already pay zakah (Islam’s equivalent of tax), which works out at 2.5 percent of a firm’s annual turnover.
The Kingdom, which sits on a quarter of the world’s proven oil reserves has projected a SR45-billion budget deficit for the current 2002 fiscal year.
