An increase in Islamic tax liabilities is becoming a thorn in the side of Saudi Arabian banks, as concerns rise about damages to their earnings and government motives.

Saudi Arabian financial institutions do not pay corporate tax, but are subject to the zakat, an annual 2.5% tax on the bank’s net worth.

Now, a number of banks in the country have disclosed that the government’s General Authority of Zakat and Tax (GAZT) has increased the amount of payment required, and is asking for back payments from as far back as 2008.

“The additional zakat demanded by GAZT is likely to impact all banks,” Shabbir Malik, regional financials analyst at investment bank EFG Hermes, told Reuters. In some cases, the demands from GAZT exceed half of a bank’s annual net profit.

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Al Rajhi Bank stated in its 2017 financial results that GAZT has issued an order regarding the bank’s operations from 2002 to 2009, asking for 723 million riyals ($193 million). The figure is almost 8% of the bank’s 2017 net profit. The bank is appealing the demands.

Alinma Bank has revealed that its zakat expsore for 2009 to 2015 was 1.66 billion riyals ($440 million), around 82% of its profit in 2017.

Analysts are worried that these new demands could affect share prices in the banking sector on the eve of Saudi Arabia joining global equity indexes.

by Alex Hamilton
Alex is Senior Reporter at IBS Intelligence, follow him on Twitter or contact him at: alexanderh@ibsintelligence.com
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