The decision by the Shoura Council to impose a 25 percent corporate tax on foreign companies operating in the Kingdom and to scrap a proposed income tax on expatriate workers came as a surprise. For two good reasons, I anticipated the Shoura would not pass the corporate tax bill. First, the tax itself was very high. Second, the climate for foreign investment at a time when more capital should be injected into the economy did not favor any additional burdens.

International companies as well as Saudi investors are already skeptical about committing money despite strenuous efforts by the Saudi General Investment Authority to attract both foreign and domestic capital. The tax, if passed, would only add to the ills of an economy already saddled with problems and thus dampen any remaining hopes for attracting already reluctant investors.

Also, I did not expect the Shoura to reject the proposal for an income tax on foreign workers with a monthly wage of SR3,000 and more. Such a tax would help bolster the Saudization drive and reduce unemployment. Private businesses continue to hire non-Saudis, preferring them because they are less expensive, more committed and very obedient. If imposed, the tax would have favored local job seekers as well as stimulating private companies to replace foreign staff with Saudis.

Giving foreign companies a tax holiday and imposing an income tax on foreign workers would encourage foreign companies to come and invest in the country and would thus create more jobs.

The Shoura no doubt has its own own reasons for what it did. The members who voted in favor of the first proposal and against the second must have acted for what they see as being in the national interest. The problem is that while making public the recommendations relating to the two proposals, the Shoura did not tell us about the justifications. It is fine to tell the public about recommendations and decisions, but what matters most in a controversy is for the public to know the justifications on which the final decision was based. The idea is not just for the Shoura to inform people of its decisions, but for the people to understand and be with the Shoura’s performance.

Arab News From the Local Press 3 June 2003