JEDDAH, 8 May 2003 — Finance Minister Dr. Ibrahim Al-Assaf yesterday rejected calls for further tax cuts on the profits of foreign firms, saying it would be an abuse of public funds.
“Cutting the tax further from the proposed 25 percent will be a waste of public money without any legitimate reason,” Al-Assaf told Al-Eqtisadiah business daily, a sister publication of Arab News. He said foreign investors in most countries would not benefit by such heavy tax cuts, “because if they do not pay it in the Kingdom they have to pay it in their own countries.”
Al-Assaf was referring to a proposal by the Council of Saudi Chambers of Commerce and Industry (CSCCI) to slash the tax further to 10 percent, from the 25 percent tax approved by the Shoura Council recently.
Al-Jazirah newspaper quoted CSCCI chief Abdul Rahman Al-Jeraisy as saying that the 10 percent tax ceiling would benefit the local economy more than the 25 percent stipulated in a new taxation law endorsed by the Shoura.
The proposed law, still awaiting Cabinet approval, slashed the rate from 45 percent in a bid to attract overseas capital into the Kingdom.
“It will give better returns to the state treasury, as it will stimulate the domestic economic cycle, provide the Kingdom with expertise and create job opportunities for Saudis,” Al-Jeraisy told the daily.
The governor of the Saudi Arabian General Investment Authority (SAGIA) Prince Abdullah ibn Faisal last Wednesday criticized the new law, saying it would not attract foreign investment.
He said it discriminated between foreign investors and Saudi businessmen, as the latter pay only 2.5 percent zakat.
But Al-Assaf said the comparison of the rate of zakat with that of tax was wrong. “The 25 percent tax is imposed on the net profit... while the 2.5 percent zakat is imposed on both the profit and the capital,” he explained.
There is no tax on companies which do not make a profit and the tax is calculated after deducting losses of previous years from the current year’s profit, Al-Assaf said. On the other hand, a firm has to pay zakat even after incurring losses, he added.
The minister did not approve the theory that there should be further tax cuts to attract foreign investment. “We know that foreigners used to invest in our country when the tax rate was 45 percent. It shows the Kingdom’s investment climate is attractive.”
Al-Assaf said many countries were charging more than 30 percent tax while some others over 50 percent. “So we believe that slashing the tax from 45 to 25 percent would serve as an additional incentive to foreign investors,” he added. He also refuted reports that the proposed 25 percent tax was higher than the rate in neighboring states.
“There are countries which do not impose any tax and still they don’t receive any investment while there are others which receive a lot of investment even after imposing high taxes,” he pointed out.
Most industrialized countries, from which the Kingdom expects investment, impose an income tax of 30 percent or more. They deduct the taxes paid by companies or individuals in other countries. “This means foreign investors will not benefit from further tax cuts, rather it will go to their state treasuries,” he added.
He said Saudi Arabia was one of the few countries that allow losses in unspecified years to be carried over to the next year. “Most countries limit them to one or two or up to five years,” he explained.
