April 9, 2012

Taxing foreigners only won’t work

Arab news

April 9, 2012

Taxing foreigners only won’t work

By: Abdullah Al Alami

We all know by now that the Shoura Council rejected a move to tax the incomes of individual expatriate workers in the public and private sectors.

I will not comment on the respectful Council member who suggested the notion, but I do suggest that we all study the laws and circumstances before we commit ourselves to contradicting ethical practices and international agreements. Obviously, news that the debate on the issue had been revived had drawn criticism from the expatriate community, especially low-paid workers.

Apparently the Council member suggested that most countries in the world impose income taxes on individuals who work and earn money in those countries. Well, he forgot to mention that no country in the world impose income tax on foreigners only. He claims that it is high time we impose income tax on foreigners because they are beneficiaries of all government support and subsidies on utility services and products such as water, electricity, wheat and petroleum products. The statement is true, but all people living in Saudi Arabia including Saudi citizens also benefit from these government support and subsidies.

I am not even sure why the Council had to hear arguments for and against the proposal before it made its decision. I was surprised even more to hear that the reason for rejecting the “Tax for Expatriates” proposal was that proponents of the move could not attain the requisite majority in the house to secure approval.

Historically speaking, income taxes of Saudi and expatriate employees working in the Kingdom were abolished in 1975. All Saudi citizens and all Saudi companies, however, must pay a religious tax — zakat — of 2.5 percent annually on profits and on the assessable amount for individuals. Later, there were moves to reintroduce income tax on foreigners in the late 80s. However, the plans were wisely scrapped. In a bid to attract more foreign investment into the Kingdom, the government slashed in 2004 the tax rate imposed on foreign investors from 45 to 20 percent.

Different tax rates are applied to companies working in petroleum or hydrocarbon industries. The final payment to a company is dependent upon a certificate issued by the Ministry of Finance stating that the contractor is either exempt from paying taxes or has paid all the due taxes. The foreign partner in a joint-venture does not pay zakat.

Persons subject to zakat are either Saudi individuals or nationals of GCC states who conduct business in the Kingdom of Saudi Arabia in commercial goods, or Saudi companies of all types and companies owned by nationals of GCC states that conduct business in the Kingdom, and shares of Saudis and nationals of GCC states in joint companies.

Salary and benefits of non-Saudi employees are not subject to income tax at present. However, non-Saudis who derive income from investments in Saudi businesses or from professional activities, and who are non-residents, are taxed at rates ranging from five percent (for taxable income up to SR16,000) to 30 percent (for taxable income over SR66,000).

To be fair, I should mention the tax supporters’ argument. As I read it, they felt the proposal would have helped bridge the gap between the wages of Saudis and non-Saudis and increased the chances for locals to work in the private sector. I also agree with supporters that the government is neither levying a single riyal in tax or zakat on foreign workers remittances, nor do they need to pay any kind of taxes. We also all know by now that foreigners working in the Kingdom transfer about SR100 billion to their countries of origin annually.

If we’re going to impose income tax in the country, I suggest that it should be applicable to both foreigners and Saudis. Taxing foreigners for their hard labor in the Kingdom is a serious discrimination issue.

Tweet: “From the viewpoint of absolute truth, what we feel and experience in our ordinary daily life is all delusion. Of all the various delusions, the sense of discrimination between oneself and others is the worst form, as it creates nothing but unpleasant”. Dalai Lama


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