Video: New Zakat tax on Saudi banks threatens to break their backs
Several Saudi banks have been assessed an Islamic tax by the country’s tax authority and will likely owe a significant sum, Bloomberg Intelligence says. Arabia Monitor Chief Economist Florence Eid-Oakden weighs in on “Bloomberg Markets: Middle East.
“Saudi is trying to have a more comfortable fiscal position as part of an ongoing refrain that it needs more funding, more liquidity flows to streamline it better,” said Eid-Oakden.
“I heard before last November’s corruption purge that Saudi families were asked to pay additional taxes om family groups, etc, so this is no surprise, and one in a line of measures we have seen all year.”
According to IBS intelligence, Saudi Arabian financial institutions do not pay corporate tax, but are subject to the zakat, an annual 2.5% tax on the bank’s net worth.
Now, a number of banks in the country have disclosed that the government’s General Authority of Zakat and Tax (GAZT) has increased the amount of payment required, and is asking for back payments from as far back as 2008, said IBS.
“The additional zakat demanded by GAZT is likely to impact all banks,” Shabbir Malik, regional financials analyst at investment bank EFG Hermes, told Reuters.
In some cases, the demands from GAZT exceed half of a bank’s annual net profit.
Al Rajhi Bank stated in its 2017 financial results that GAZT has issued an order regarding the bank’s operations from 2002 to 2009, asking for $193 million.
Alinma Bank has revealed that its zakat expsore for 2009 to 2015 was $440 million, around 82% of its profit in 2017.