JEDDAH, 15 April — The Saudi government is likely to impose an income tax of about 2.5 percent on expatriate workers within seven months, a newspaper reported yesterday.
“The proposed income tax will not exceed the rate of zakah, which is 2.5 percent of the earnings, and may be even lower,” Al-Yaum quoted a high-level source in the Shoura Council as saying.
“The Shoura is currently reviewing a draft law on income tax which will be officially endorsed within a period not exceeding seven months,” the source told the Arabic daily.
According to Dr. Hamoud Al-Badr, secretary-general of the Shoura, the 120-member consultative body has already discussed 18 of the law’s 74 articles.
“We have decided to discuss the remaining articles on every Tuesday,” Al-Badr told the Saudi Press Agency after a regular session of the council.
He explained that the new legislation is aimed at encouraging foreign investment, as it will cut corporate tax on foreign companies from 45 to 30 percent.
Finance and National Economy Minister Ibrahim Al-Assaf last week ruled out imposing income tax on Saudi citizens or companies, but the measure will be extended to joint ventures.
Saudi companies already pay zakah, which works out as 2.5 percent of a firm’s annual turnover.
The Kingdom had passed a bill 50 years ago stipulating that foreigners working in the Kingdom should pay income tax, but it was never implemented.
Around seven million expatriates live and work in Saudi Arabia, five million of them employees mainly in the private sector. Unofficial figures indicate foreigners remit around SR70 billion to their countries annually.
Abdul Rahman Al-Jaafary, head of the Shoura’s financial committee, said the proposed tax rate would “not be high” and that in some cases it would be less than the 2.5 percent zakah that Saudis pay annually.
Foreign firms operating in the Kingdom pay an annual corporate tax, but expatriates, which form the bulk of the work force, have not had to pay taxes since the 1970s.
The tax law is part of Saudi Arabia’s efforts to reform its welfare-dominated economy and diversify state revenues away from oil sales, which account for 80 percent of its income.
