Abuse of provisions related to the amendment of the tax rate in the Kingdom of Saudi Arabia 

Taxes are one of the most important financial tools that countries rely on to develop their public revenues and achieve economic and social justice. In Saudi Arabia, VAT has become one of the main pillars of the modern tax system since its implementation in 2018. With the development of tax systems and the adjustment of the tax rate from time to time, there have emerged some negative behaviors that exploit these amendments illegally, whether by some businesses or individuals. This article aims to shed light on the concept of modifying the ratio The tax, the motives for its abusive exploitation, its economic and legal effects, and the importance of enhancing regulatory and societal awareness to reduce these practices.

 

First: The concept of adjusting the tax rate

Adjusting the tax rate refers to the competent authority, the Zakat, Tax and Customs Authority, changing the tax rate imposed on goods and services subject to VAT, whether by increase or reduction. This adjustment is usually made in accordance with the economic policies of the state, the market situation, and public revenue developments. For example, in July 2020, the Saudi government decided to raise the value-added tax rate from 5% to 15%, as an exceptional measure to support the state budget during the pandemic and the decline in oil prices. 

Second: Forms of abuse of tax rate amendment

The abuse of these provisions appears in several forms, most notably:

1.  Circumventing tax timing
Some businesses artificially submit sales invoice dates before the new tax rate comes into effect, even though the service has not yet been provided or the item has not been delivered, in order to apply the old reduced rate.

2.  Inflating prices under the pretext of tax In
cases of upward adjustment, some sellers exaggerate price hikes unjustifiably, claiming that the tax increase dictates it, although the actual increase does not justify this inflation.

3.  Some
institutions may deliberately delay updating their accounting systems to implement the new rate, allowing them to collect tax differences in their favor at the expense of the consumer and the state.

4.  Issuing non-conforming
invoices Issuing tax invoices in unreal amounts or on a different date in order to benefit from a lower tax rate.

 

Third: Motives for exploiting the tax amendment

There are several motives that push some parties to such practices, including:

1.  Making illegal profits by unjustly reducing tax liability.

2.  Weak control at times, especially during periods of tax transition or rate adjustment.

3.  Lack of awareness of consumers and their inability to verify the validity of the invoice or the applied percentage.

4.  Tax evasion as a way to illegally reduce operational costs.

 

Fourth: Economic and legal effects of abuse

Economic impacts:

1.  Distorting competition between enterprises, where fraudulent companies benefit at the expense of compliant enterprises.

2.  Low consumer confidence in the market, as a result of price and billing manipulation.

3.  Decline in state tax revenues due to evasion or fraud.

Legal implications:

1.  These practices are considered systemic violations, subject perpetrators to large fines, and in some cases may even temporarily close the facility or deprive of government contracts.

2.  The system stipulates that  the tax must be applied according to the date of providing the service or delivering the commodity, and the Zakat and Tax Authority is responsible for investigating violations and punishing the perpetrators.

 

Fifth: The State's Efforts to Reduce These Practices

The Kingdom has made great efforts to ensure the proper application of tax systems and reduce the abuse of amendments, the most prominent of which are:

1.  The electronic invoicing system (Fatora)
aims to regulate the issuance of invoices in an accurate and transparent electronic manner, which reduces the manipulation of dates and amounts.

2.  Intensify field monitoring
through inspection campaigns on markets and commercial establishments to verify compliance with tax amendments.

3.  Impose progressive penalties
that encourage compliance and deter violators, including fines, suspensions, and defamation.

4.  Raising community awareness
through awareness campaigns that explain to consumers their tax rights and the importance of requesting the correct invoice.

 

Sixth: The role of the consumer and society

Citizens and residents play a key role in combating this phenomenon, through:

1.  Request a tax invoice at every purchase.

2.  Report violations through the Zakat Authority's "Dhareba" app.

3.  Spreading awareness in his surroundings of the importance of tax compliance and the harm of circumvention on everyone.

 

 

The abuse of provisions related to the adjustment of the tax rate not only harms the national economy, but also harms consumer rights and weakens the climate of trust in commercial transactions. Hence, the importance of enhancing tax awareness among everyone, individuals and establishments, and ensuring compliance with the regulations announced by the competent authorities. Transparency, oversight and accountability remain the most important tools to ensure the integrity of the tax system and achieve economic justice in Saudi Arabia.