DUBAI, 4 March 2002 — The Saudi government is revamping its tax law to lure foreign capital and boost the economy but the Kingdom has no plans yet to introduce income taxes, a senior Saudi official said here yesterday.
Abdul Rahman Al-Tuwaijri, secretary-general of the Supreme Economic Council, told reporters the law, drafted last year and now under review in the Shoura Council, proposes cutting corporate tax on foreign firms operating in the Kingdom to around 30 percent from 45 percent.
But he said there would be no change to Saudi firms or individuals as they already pay Zakah, amounting to 2.5 percent of annual income, as required under Islam.
“We expect the new tax law and other laws such as the Capital Markets law to help encourage foreign investment,” he said on the sidelines of an economic conference in Dubai hosted by Emirates International Forum.
“We’re in a period of difficulty and we need to see a real high growth. Our objective is to increase the efficiency of the economy,” Tuwaijri added.
Weaker oil prices and a global recession following the Sept. 11 attacks on the United States have rung warning bells in Saudi Arabia, where oil sales account for almost 80 percent of state income.
The Kingdom, with chronic budget deficits, expects to run up yet another deficit this year and its de facto ruler Crown Prince Abdullah warned his countrymen last month that the economy was in crisis.
The International Monetary Fund as well as some top economists has advised the welfare state to introduce various domestic taxes and other reforms to help diversify the government’s income. They also urged Saudi Arabia to tackle its ballooning unemployment rate estimated at more than 15 percent.
Tuwaijri said the Kingdom was serious about restructuring the state-dominated economy, citing the opening of the natural gas sector to foreign firms as an example.
He also said that the government was readying the monopoly Saudi Telecom Company for privatization as well as the flag-carrier, Saudi Arabian Airlines. He said the right regulatory framework was being put into place but would not say when these firms would be put on offer.
“I am confident that we will be able to attract the kind of capital we are looking for,” he said. “We’re not privatizing for privatization’s sake, so major operations like these take time.”
Investors, however, have criticized Saudi Arabia’s lack of clear laws and regulations, especially governing the operations of the country’s stock market, the Gulf region’s biggest.
Tuwaijri said that while Saudi Arabia was working on the appropriate laws to increase transparency, he did not believe that the issue was blocking capital inflows.
“This is not a valid reason, it’s an excuse,” he said. “If this were true, how have foreign investors been coming to the Kingdom for the past 50 years and making money?”
