Lower VAT threshold to increase taxpayer base by 150,000 in Saudi – KPMG

The reduction of the value-added tax (VAT) registration threshold in Saudi Arabia to SAR375,000 ($99,960) is estimated to increase the taxpayer base by 150,000, according to KPMG Al Fozan and Partners.

The kingdom introduced the 5 per cent VAT rate on January 1, 2018 but it only applied to businesses with revenues exceeding SAR1m ($266,560) in its first year.

From January 1, 2019 those with revenues of between SAR375,000 and SAR1m have also been subject to the tax.

Currently the kingdom has over 140,000 VAT-registered taxpayers, KPMG Al Fozan and Partners said in a statement.

With the registration deadline having ended on December 20, VAT audits have started and assessments issued for violations such as late registration and filing of VAT returns as well as incorrect declarations.

Penalties include the suspension of some government services and fines ranging from 5 to 25 per cent of the tax owed, according to the General Authority for Zakat and Tax (GAZT).

Under the rules, non-resident taxpayers are also required to appoint a tax representative to act on their behalf and to assume joint liability for VAT debts.

“This requirement is posing some challenge to some non-resident taxpayers. Hopefully, progress in this area can be made soon,”KPMG Al Fozan and Partners said.

Nick Soverall, head of VAT at KPMG Al Fozan and Partners said: “The relative efficiency with which the GAZT managed the implementation played a significant part in the fairly uneventful adoption.

“The GAZT is making strides towards improved policy, administrative and auditing capacity in all taxes. The introduction of VAT has given this effort impetus,” he added.

The authority has issued 24 detailed VAT guides on different topics such as financial services, healthcare, telecommunication, the digital economy and real estate to clarify the law and support taxpayers with compliance.

Soverall advised businesses to consider creating a tax strategy, including policies and procedures, to manage tax risk and interaction with stakeholders.

“Saudi taxpayers need to be prepared. The kingdom’s tax authorities are not standing still,” he said.

Soverall also suggested the use of tax technology to aid compliance and analysis in the kingdom.

“Managing large volumes of data present a financial and tax risk. Therefore, the integration of tax specific technology to optimise tax operations is critical.

“GAZT is conscious of and taking steps to formalise the processes and operations of the tax function so that the tax team is equipped with the right skills and tools to meet the new challenges ahead,” he added.

Authorities said in September they had recorded 187 violations of VAT rules by schools, training institutes and bookstores following inspections.

Read: Saudi records 187 VAT violations among schools, bookstores

In December, inspectors also found over 150 violations ahead of the VAT deadline.

Read: Saudi inspectors find over 150 violations ahead of VAT deadline