GCC can rake billions in zakat, income tax

(Getty Images)

The six-member Gulf Co-operation Council countries could generate additional revenues of billions of dollars in public finances each year if the region applies the zakat, the Islamic alms duty, income tax and corporation tax like Saudi Arabia, ArabianBusiness.com has learned.

Saudi Arabia is currently the only country in the Gulf to institutionalise the payment of zakat, the compulsory 2.5 % of wealth Muslims have to pay each year. In addition to corporation tax and customs duties, zakat makes up the majority of the kingdom's public revenues in the non-oil sector, accounting for 70 billion riyals ($18 billion) each year.

The Zakat Fund in the UAE, an independent authority under the Emirates' federal government, exclusively told ArabianBusiness.com this week that it had applied to the UAE federal government to collect all zakat payments from companies listed on the Dubai Financial Market and Abu Dhabi Securities Market.

With both Bahrain and the UAE looking to institutionalise the zakat payment, and Kuwait's announcement that income tax is inevitable, taxation and levy initiatives could lead to billions in government coffers from the non-oil sector in the Gulf.

With a population of over 38 million, government revenues for the non-oil sector in the Gulf currently account for $45 billion per year but in the UK, with a population of over 60 million, total government revenues are this year forecast to be over $1 trillion - or 40.3% of the UK's gross domestic product.

Many citizens in Gulf countries have long been accustomed to a cradle-to-grave welfare state with benefits ranging from large long-term housing loans and marriage grants to free education and health services. Many economists say the current welfare system cannot be sustained as a growing population puts increasing pressure on state coffers.

Saudi Arabia

Saudi Arabia is the only country in the Gulf to both impose a zakat payment, income tax and corporation tax, which it assesses and collects under its Department of Zakat and Income Tax (http://www.zakat.gov.sa). The kingdom currently levies zakat on Saudi, GCC nationals and businesses. Corporation tax from 2004 has been levied at a flat rate of 20% on non-Saudis and non-GCC citizens.

Brad Bourland, Chief Economist for Saudi-based investment bank, Jadwa Investments, told ArabianBusiness.com that the current problem in the Gulf was not with assessing zakat payments or corporation tax, but with collecting them.

In comparison to the Gulf, the UK house currently yields nearly 30% of its taxation revenues from income tax, which is projected to be $288 billion for the fiscal year 2006 to 2007.

Bahrain

With a population of over 700,000 people, the island nation of Bahrain currently generates around $1.12 billion in non-oil sector government revenues each year.

Though Bahrain does not operate a general corporation tax system, in June 2007, the sheikhdom did implement a type of annual income tax in which some 100,000 workers, including more than 65,000 in the private sector and 35,000 in the public sector, had 1 per cent tax deducted from their paychecks.

Citizens and non-citizens alike have to pay the tax to fund a new unemployment scheme, which has drawn opposition from trade unions, religious figures and political groups.

The sheikhdom also has a Zakat Fund which is voluntary and which the al-Asala bloc in the Bahraini parliament proposed in July should be made obligatory for people in Bahrain to contribute towards. The issue will be discussed for approval when parliament resumes in October.

Kuwait

With a population of over 2.5 million people, Kuwait currently generates around $2.7 billion in non-oil sector government revenues each year.

Foreign corporate bodies carrying on a trade or business in Kuwait are liable to tax. The profits, including capital gains, of foreign companies' operations in Kuwait are subject to income tax but Kuwaiti-owned businesses are not liable to tax. Income tax is levied at the rate relevant to the taxable income with rates varying from zero to 50% plus 5%.

On September 2, Kuwaiti ruler Emir Sheikh Sabah Al-Ahmad Al-Jaber Al Sabah said the high cost of public services will eventually be met by a tax on personal income.

"Whether we like it or not, we must all acknowledge the fact that oil will not last forever and that state services are very costly...the day will come when the state will have to impose taxes on the services it provides, but the situations of those with low income will be taken into consideration" he said.

Kuwaiti MPs have long said they would reject taxing the income of Kuwaitis until the government prevents the waste of public funds and stamps out corruption.

The sheikhdom also has not institutionalised Zakat payment but it does have a voluntary Zakat House (http://www.zakathouse.org.kw) which is often patronised by the ruling al-Sabah family. Zakat House was established in 1982 as as an independent body under the supervision of the Ministry of Religious Affairs and Endowments.

UAE

With a population of over 4.4 million people, the UAE currently generates around $13.5 billion in non-oil sector government revenues each year.

There is no taxation at the federal level in the UAE, but at an individual emirate level, oil-producing companies are required to pay tax on annual profits as are branches of foreign banks.

The Emirates have not institutionalised Zakat payment but it does have a independent Zakat Fund (http://www.zakatfund.ae) established in 2003 and which is is clamouring to be made legally obligatory in one of the Gulf's most eminent financial hubs.

Last year, the fund's head Abdullah bin Aqidah Al Behairi said a nine-month would be undertaken to enlist people and businesses to pay their zakat. According to Al Behairi, 59,000 UAE national millionaires were required to pay at least $5.5 billion each year in zakat.

Al Behairi said that the fund had contacted a number of businessmen in the Emirates to encourage them amicably to pay the Zakat, stressing that the move did not take an official form, "but was meant to familiarise these people with the importance of performing this religious obligation to purify and safeguard their wealth via Zakat". Payments to the fund can also be made online and securely via all major credit cards, using the Dubai eGovernment's ePay service

Oman

With a population of over 3.2 million people, Oman currently generates around $2.9 billion in non-oil sector government revenues each year.

There is little direct taxation in Oman, with some minor municipal and leisure taxes in place. Oman has not institutionalised zakat, which comes under the remit of the Ministry of Religious Affairs and Endowments.

Qatar

With a population of over 900,000 people, Oman currently generates around $5.9 billion in non-oil sector government revenues each year.

Tax is only levied on foreign companies' income in Qatar. For joint ventures only the foreign shareholders' portion of the profit is taxable whilst GCC nationals are treated as Qataris and consequently are not currently subject to income tax.

Qatar has not institutionalised Zakat payment but does have a Zakat Fund (http://www.zf.org.qa) which is voluntary and as in the UAE, can be paid online.

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic. Arabian Business would like to point out that only comments relevant to the story will be published. Any containing personal insults or inappropriate language will not be approved.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM