Saudi banks ‘close to deal’ on Islamic tax

Banks have been contesting the extra payments, but a compromise is close

Saudi Arabian banks are expected to reach a deal with Islamic tax authorities before the end of the year to resolve a dispute over increased liabilities, banking sources say.

Banks have been at loggerheads with the authorities since at least the start of the year over additional payments of zakat for years going back as far as 2002.

Banks have been contesting the extra payments, but a compromise is close, said the sources, with one adding that the tax will be calculated at 10 per cent of each bank’s profit.

The previous calculation by the General Authority of Zakat and Tax (GAZT) was based on 2.5 per cent of a bank’s equity, with adjustments.

GAZT did not respond to an emailed request for comment.

The increase in payments across the banking sector could be as high as 25 billion riyals ($6.7 billion; Dh24.46 billion) if banks are told to pay zakat based on a rate of up to 2.5 per cent of their book value, estimated Shabbir Malik, regional financial analyst at investment bank EFG Hermes.

If the formula changes to banks paying zakat based on 10 per cent of profit before tax, it could be around 14 billion riyals, he estimated.

The dispute prompted Saudi Crown Prince Mohammad Bin Salman to intervene earlier this year and direct the government to find a breakthrough.