Saudi Arabia says no plans to increase Islamic tax on private sector

Clarification follows Bloomberg report that the kingdom is considering doubling the levy on local banks

Saudi Arabia’s National Commercial Bank, reported a 22 per cent drop in its second-quarter profit.  Michael Bou-Nacklie for The National

Saudi Arabia clarified it has no plans to raise Zakat on the private sector after Bloomberg reported last week that the kingdom was considering to double the rate.

A report on March 6 said that Saudi Arabia was examining the regime to increase the Islamic tax paid by local lenders to as much as 20 per cent, from 10 per cent, as it seeks to boost alternative sources of revenues.

The General Authority of Zakat and Tax on Friday issued a statement on banks' religious levy saying: "The authority wished to clarify that there are no current plans to increase the Zakat levels in the private sector."

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The government body said it began public consultation on a draft of Zakat regulations after making some amendments to the content of the regulations.

“All stakeholders have responded positively and stated their comments which the authority has received with interest,” the authority said without providing details.

The tax regulator has also concluded settlements with a number of financial institutions to close their pending Zakat positions.

Saudi Arabia's banking sector is changing as lenders explore mergers to gain scale by consolidating assets and competing more efficiently. The kingdom's largest lender, National Commercial Bank, in December announced merger talks with Riyad Bank.

The potential deal would follow the combination of HSBC Holdings' affiliate Saudi British Bank and Alawwal, which was backed by Royal Bank of Scotland. 

Saudi Arabia is the biggest banking market in the six-member economic bloc of GCC.