RIYADH: Crown Prince Mohammad Bin Salman has directed the Saudi government to resolve a dispute with banks facing higher Islamic tax liabilities, banking sources say, in an attempt to avoid any damage to his push to diversify the economy.
It follows disclosures by major Saudi banks in recent weeks that the government’s General Authority of Zakat and Tax (GAZT) is asking them for additional payments of zakat — the name of the tax — for years going back as far as 2002. In some cases, the demands exceed half of a bank’s annual net profit. Banks are contesting the extra payments, which are estimated at around 9.8 billion riyals ($2.6 billion) across 11 of the kingdom’s 12 listed banks.
Analysts have warned the liabilities could hurt liquidity at the banks, the majority of which are main financiers of the budget deficit through purchases of local bonds.
A committee with representatives from GAZT, the central bank and other parties was recently formed to look into the issue at the behest of the Crown Prince, widely known by his initials MbS, the sources told Reuters.
Lenders and the authorities have been at loggerheads over the amount of zakat they pay for more than a decade. But the dispute has captured more attention from investors recently as the kingdom seeks to attract billions of dollars of foreign investment from global equity indexes in the next couple of years.
Bankers say the way the tax is calculated is opaque and the heavy financial demands on banks threaten the stability of the banking sector and capital markets.
“MbS is keen on maintaining the banking sector’s solid position… He is aware of the economic challen
