17 January 2016
JEDDAH - Saudi Arabia maintains its third position in the global ranking for ease of tax payment, the latest release of the Paying Taxes report by The World Bank and PwC said.

With the least demanding tax framework, well below the world average, the Kingdom has a total tax rate of 15.0%, an average number of three payments and an average time to comply of 64 hours. The report analyzed the same factors in 189 countries, with global averages of 40.8% total tax rate, 25.6 number of payments, and 261 hours for time to comply.

Despite a small increase in the total tax rate since the previous year, the Middle East region as a whole is the easiest region in which to pay tax. It has the lowest total tax rate and time to comply, and all of the sub-indicators have been stable since 2004.

The Paying Taxes 2016 report finds that labor taxes and mandatory contributions paid by employers account for 59% of the average total tax rate for the region and is the most significant contributor to the total tax rate in most economies. Profit taxes account for 39% while other taxes account for just 2% of the region's average total tax rate.

"The annual report is a powerful index in shaping discussion on tax reform and fiscal policies for many governments. The latest findings from the study reveal that while the region remains the easiest to pay taxes, the implementation of the VAT will bring a portfolio of new discussions to tax reform," said Dean Kern, Partner, PwC's Middle East Tax and Legal Services Leader.

Commenting on Saudi Arabia's position, Mohamad Yaghmour's PwC Saudi Arabia Zakat and Tax Leader, said "maintaining this position is a testament to what the Saudi government is achieving. The department of Zakat and Income Taxes (DZIT) in Saudi Arabia has taken a series of steps to ensure quantum leap in e-government services, as an attempt to develop and modernize the DZIT system and move away from manual processes." In 2014 DZIT signed an agreement with an IT solutions company to set up and implement Tax and Revenue Management System. The aim is to facilitate the whole of the taxpayer's process with DZIT through an electronic portal in order to process revenue verification and promptly raise any outstanding tax liability to reduce delays in the payment of zakat and tax."

As a first step, DZIT initiated online zakat filing in 2013 which was strictly enforced from 2014 and onwards. In 2014, withholding tax filing was made online to streamline and auto update the taxpayer's records with the DZIT. Registering for tax/zakat number has also been made online. The DZIT is in the process to prepare platform for e-tax filing for 100% taxpayer companies and mixed entities (i.e. which pay zakat as well as tax).

According to the report, by 2014 84 economies had fully implemented electronic filing and payment of taxes. In 2005, the earliest year for which we have data, only 46 economies had such a system.

Economies which have invested in online filing and payment infrastructure are reaping a digital dividend from these systems.

On the other hand, the recent discussions on the implementation of VAT in the GCC will transform the tax system in Saudi Arabia. Although VAT will be adopted at a GCC level, it will be applied at a national level.

Jeanine Daou, Partner and Middle East Leader for Indirect Taxes and Fiscal Policy, said: "the Paying Taxes report helps inform the discussion around tax reform, a topic that is currently extremely relevant in the GCC.

Governments must now make decisions concerning key elements in the system, including the simplification and harmonization of the compliance requirements as well as the extent to which VAT is deductible to remain neutral for businesses."

She added that "Saudi Arabia and GCC governments will have to make strategic decisions on the harmonization of the VAT in the GCC.

Harmonization is needed to make the system fully efficient and compatible with the requirements of a true common GCC market that promotes cross border activities, reducing VAT compliance costs for GCC businesses and contributing significantly to increasing the competitiveness of GCC companies. Non-harmonization may lead to double taxation or non-taxation within the GCC which creates opportunities for abusive schemes.

Non-harmonization may also impact competitiveness between the GCC states where specific sectors are not subject to the same VAT treatment leading to businesses establishing in more favorable jurisdictions."

© The Saudi Gazette 2016