Glad to present the 2022 edition of the MESA Tax guide — our flagship thought leadership publication on tax in the Middle East and South Asia (MESA) region.
Saudi Arabia is the largest economy in the region and the only Middle Eastern member state of the G20. The continued development and success of the Saudi economy is instrumental to the economic growth of the region, and Saudi Arabia is showing positive signs of economic recovery and growth from the Covid-19 pandemic. This recovery was possible because of the remarkable resilience businesses have shown during the pandemic to withstand the economic shock.
The Kingdom continues to advance its ambitious social and economic transformation program under the umbrella of the Kingdom’s Vision 2030 despite the impact of the Covid-19 pandemic. In some ways, this unfortunate global event accelerated efforts to achieve fiscal stability and sustainable long-term growth. Most notably, the Kingdom took swift action to support public revenue during 2020 by increasing the value added tax (VAT) rate from 5% to 15% with effect from 1 July 2020 and increased various customs duty rates (ranging from 0.5% to 15%) for a list of products from 10 June 2020. A new tax on property transactions, Real Estate Transaction Tax (RETT) was introduced in October 2020 with a rate of 5%.
Total national revenues are expected to reach SAR 849 billion in FY2021 with tax revenues representing 30.3 percent. The budget deficit in 2021 is expected to be SAR 141 billion (4.9% of the estimated 2021 GDP), a sharp improvement from SAR 298 billion (12% of GDP) for 2020, on the back of a domestic economic recovery and higher oil prices.
Today, it would be fair to say that tax has taken center stage in the boardroom discussions. Thus, the tax leaders of today need to be up-to-date with the changing tax landscapes and keep themselves informed of the cross-border taxation policies. Taxation continues to play a pivotal role in the economic development of the Kingdom. In the last two years major initiatives have been undertaken to create a tax environment which seeks to both encourage investment and raise revenue.
A key initiative has been the merger of the General Authority of Zakat and Tax and the Customs Authority to form the Zakat, Tax and Customs Authority (“ZATCA”) so that all taxes are administered by a single regulator. Amongst ZATCA’s stated aims are: increasing taxpayer compliance and commitment; supporting economic development and facilitate trade; and improving customer experience.
In addition to the re-organization, ZATCA, in collaboration with the Ministry of Investment, the Commission for Information Technology and Communication and the General Authority for Civil Aviation has supported specific initiatives aimed to improve the business environment and attract investment. Special Economic Zones have been created for this purpose and the tax regime has been a key component of the package of measures agreed.
Of great significance is the recent introduction to the Kingdom of e-invoicing from 4 December 2021, following the global trend of the increasing digitization of tax administration. E-invoicing is expected to have a major impact on tax collections and to minimize fraud.