Saudi Arabia Cancels Plan to Tax Foreigners

King Fahd canceled a plan Tuesday that would have dimmed his realm’s luster for foreigners by taking away up to 30% of their untaxed, and often fat, paychecks.

Many in the large foreign colony, which includes 30,000 Americans, had thought seriously of leaving since the plan for taxing foreigners was announced Sunday.

On Tuesday, the official Saudi Press Agency, quoting an unidentified “responsible source,” said the king decided that the income tax “was shown to need revision.”

Diplomats said the reference to revision still appeared to leave open the possibility of a tax on incomes of the estimated 3 million foreigners who live in Saudi Arabia. The government has had to dip into its cash reserves because of low oil prices.

The income tax would have had a top bracket of 30%, applied to annual salaries above 66,000 riyals ($17,600). Tuesday’s brief announcement did not mention the newly imposed taxes of up to 45% on foreign corporations.

Offset Deficit

Both taxes were part of a Saudi plan to offset a deficit in the 1988 budget of 36 billion riyals ($9.6 billion). The total budget is 141.2 billion riyals ($37.7 billion).

Taxes on foreigners were abolished in 1975-76 because of huge profits from rising prices from the millions of barrels of oil Saudi Arabia exports every day.

Saudi citizens and companies pay no income tax but donate “zakat,” about 2.5% of income, to charity as decreed by the Koran, Islam’s holy book.

Other new financial plans call for the kingdom to borrow money for the first time since the oil boom began.

Earning Less

Many foreign workers see the large tax-free salaries as compensation for working in the conservative desert nation, where alcohol is banned and the sexes are strictly segregated. The medical staff at the nation’s leading hospital, King Faisal Specialist, threatened on Monday to quit en masse.

Some business executives said before the decree was revoked that they expected most Westerners to leave when their contracts expired because the taxes, combined with the falling value of the riyal, would drive real pay below what they could earn at home.

“The rule of thumb for justifying working in Saudi Arabia used to be you’d earn double your salary, plus pay no tax,” a British executive said. “This year, it was earn the same salary and pay no tax. Now, with the fall of the riyal plus this tax, you’re earning less than you would in Britain.”