The calm before the storm: Why Saudi Arabia’s tax amnesty could be a window into the future

Businesses have just three weeks remaining to benefit from the tax amnesty currently available in Saudi Arabia.

The deadline for submissions under the amnesty is 31^st May, allowing companies a final chance to have outstanding or potential penalties waived on a variety of taxes, including VAT, Corporate Income Tax and Excise Tax.

Foreign businesses must urgently consider whether to register for taxes in Saudi Arabia in order to avoid penalties. Any errors or issues relating to VAT returns and other tax data that are not flagged by the deadline could result in future action and punishments.

What does the amnesty cover?

The amnesty was originally introduced by Saudi Arabia’s Zakat, Tax and Customs Authority in March 2020 to lessen the impact of the Covid-19 pandemic on businesses. It expired in 2021 but was relaunched in 2022 and was initially due to run until 30^th November last year.

A six-month extension was announced on 1^st December 2022 and ensures businesses are exempt from punishment for a range of issues, including:

• Late registration for all tax schemes
• Delayed payment
• Incorrect VAT returns
• Late submission of return fines
• Violations of VAT field control relating to the implementation of e-invoicing rules

However, the amnesty does not cover fines paid before the date on which it was introduced, fines resulting from tax evasion or fines for late payment associated with tax principals that become payable after 31^st May.

The significance of Saudi Arabia’s amnesty

The amnesty has provided a valuable final chance for businesses to get their house in order before they will once again face significant penalties for failing to comply with tax regulations in Saudi Arabia.

Tax teams should have spent the additional time awarded by the tax authority to manage their tax burdens, settle outstanding tax dues and ensure cash outflows are perfected.

We believe the amnesty could prove to be the calm before the storm; not just in Saudi Arabia, but in nations around the world where digitalisation is transforming the way tax is managed and empowering authorities to drive towards greater revenue than ever before.

What does the future hold for businesses?

One thing is for sure: regular hikes to tax rates are never a long-term solution for tax authorities. There are only a limited number of times businesses and individuals can be asked to absorb a higher rate of VAT or any other tax before a breaking point is reached.

In countries including Saudi Arabia, where VAT was only introduced in 2018 and the system remains immature, it is yet to be determined where the ceiling is for the standard rate it can set. But in more established regimes, such as those in Europe and North America, the prospect of significant rate rises is unrealistic.

Nonetheless, we know tax authorities across the globe are being tasked with improving revenue generation – and digitalisation provides a golden opportunity to use technology to plug gaps, spot loopholes and identify missed receipts, ultimately helping to maximise revenue without raising rates.

That’s why we believe tax authorities are likely to complete the process of digital transformation, allowing them to implement a real-time, 360-degree view of all relevant tax submissions and data, before the gloves come off and non-compliant organisations are pursued and forced to repay all tax dues – in addition to any penalties.