Saudi’s new rules to raise Islamic tax for some banks

DUBAI • Saudi Arabia set out new rules for the calculation of an Islamic tax on banks that’ll result in them paying between 10% and 20% of net profit.

The General Authority of Zakat and Tax set limits for the taxable asset base of between four times and eight times net profit, according to a statement on its website.

That’s equivalent to a corridor of between 10% and 20% of net income, Bloomberg Intelligence analyst Edmond Christou said.

Most of the kingdom’s major banks will end up paying the lower limit, he wrote in a note.

Saudi Arabia was in talks with local banks to increase the tax rate to as high as 20% of net income, bringing it in line with the 20% rate paid by foreign banks in the kingdom, Bloomberg News reported this month, citing people with knowledge of the matter.

The tax authority denied it had plans to raise the levy. The current rate is 10% after deducting returns on government bonds.

Major banks in Saudi Arabia reached settlements worth a combined 16.7 billion riyals (RM18.41 billion) with the tax authority in December, ending a dispute over accounts stretching back as far as 2002 in some cases.

Local lenders started paying zakat at 10% of profit after deducting returns on government bonds from last year as part of the settlement with the authority.

They used to pay at 2.5% of equity and the new rate was applied retrospectively for many years. — Bloomberg