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772 violations found in 3,600 tax inspections in Saudi Arabia: Is your business compliant?

An investigation by Saudi Arabian authorities has uncovered an average of one tax violation among every five businesses inspected, indicating many organisations are failing to comply with the nation’s VAT rules.

The General Authority of Zakat and Tax (GAZT) completed an inspection of 3,686 trade, restaurant and retail businesses in the week ending 15th August, finding 772 violations – many of which had been documented in more than 1,100 reports received by the body in the same seven-day period.

Among the most common acts of non-compliance uncovered by GAZT were:

  • Failure to write a tax number on invoices.
  • Lack of tax collection from the customer.
  • Absence of tax stamps on tobacco products.

Now’s the time to act…

Governments in the Middle East – including in Saudi Arabia – are starting to place greater emphasis on collecting VAT to drive crucial revenue as they seek to overcome the economic impact of Covid-19 and falling oil prices.

The only way to avoid huge fines and other penalties is to comply with relevant tax legislation. How confident are you that your business is currently complying with Saudi Arabian regulations?

Unless you have 100% trust in the reliability and accuracy of your systems, now is the perfect time to act. That’s because GAZT recently announced an extension to its exemption from fines for private sector businesses until 30th September.

This gives you just over a month to get your house in order. It’s not a lot of time, but by implementing industry-leading tax technology you can enjoy 100% accuracy in every tax return and ultimate peace of mind.

Why are businesses in Saudi Arabia struggling to comply?

Saudi Arabia – along with other countries in the Gulf Cooperation Council – initially imposed VAT on goods and services on 1st August 2018 at a mutually agreed rate of 5%.

However, the country hit the headlines earlier this summer when it announced it was increasing its rate to 15% in an attempt to drive revenue for the state in the wake of the Covid-19 pandemic and subsequent slump in oil prices.

This has seemingly caught some businesses out, with many acts of both careless and deliberate non-compliance being revealed.

GAZT has reiterated its call for all business owners to fully comply with the 15% VAT rate. It warned it will continue to carry out inspection visits to local businesses – including markets and shops – to ensure the tax is being calculated, collected and recorded accurately.

“This investigation, despite lasting just a week and focusing on only 3,600 businesses, shows the rate of non-compliance with crucial tax legislation is still far too high.

“If the results are extrapolated to cover the whole of Saudi Arabia, it suggests there are currently millions of breaches taking place. With whistleblowers heavily incentivised to help the authorities in Saudi Arabia, non-compliance is a risk businesses simply can’t afford to take.

“There is significant uncertainty among businesses right now; with the effects of Covid-19, VAT rate changes and government directives pulling finance professionals in different directions.

“By investing in an industry-leading automated tax solution, companies can completely eliminate risk from their tax reporting and achieve ultimate compliance with all local regulations. For example, our solution is proven to reduce issues in your tax data by over 95% and highlight remaining red flags for your team to quickly and easily work through.”

Nathan Farmer
Commercial Director at Innovate Tax