In late July of this year, local press reported that the majority of gold shops in Saudi cities are encouraging customers to pay in cash rather than through electronic billing devices linked to the Zakat and Tax Authority, in exchange for a discount on Value Added Tax. The problem is that customers comply without questioning the reasons or considering the potential for tax evasion and its impact on state revenues and the services provided to citizens, in addition to possible security and social issues, as well as cases of hiding income, commercial fraud, and money laundering.
This also suggests that the Ministries of Commerce and Municipalities are not fulfilling their required roles, and that the penalties imposed on violators are insufficient, as they do not exceed 20,000 riyals for those who delay in digitally registering their income, or about $1,300. Tax evaders are fined three times the value of the goods or services related to the evasion. I tried to find evidence that the triple penalty had been previously enforced but found nothing. The whistleblower reward can reach up to one million riyals, or $375,000, assuming it is actually granted.
Meanwhile, an average gold shop reportedly earns about 30 million riyals annually, or $8 million. Cash payments spare them from paying approximately 4.25 million riyals in tax, or $1.136 million. Assuming there are 100 shops engaging in this practice, the total figure would rise to 30 billion riyals, or $8 billion, with tax losses reaching 4.25 billion riyals, or $1.136 billion, within a single sector. Moreover, this behavior is not new; there are documented precedents from 2020, along with similar practices in clothing stores, real estate commissions, and others.
A European study published this year revealed that tax evasion deprives Europe of significant amounts, estimated at around 825 billion euros annually, equivalent to five times the European Union's budget, or 1,650 euros for each European citizen. A report by (ProPublica), published in 2021 after analyzing individual tax data in the U.S. over fifteen years, found a significant wealth and tax evasion gap among social classes in the United States. The report noted that the middle class pays about 15% of their annual income as federal taxes, while the wealthiest class pays less than 1%.
According to (Forbes), the wealth of the 25 richest individuals in the world increased to $401 billion from 2014 to 2018, during which they paid only $13.6 billion in taxes, or 3.4% of their earnings. Countries impose taxes on income earned from salaries or, as in Saudi Arabia, on capital gains and foreign investment, with their share of the general budget typically ranging from 25% to 70%. Wealthy individuals evade taxes in two ways: first, by converting stocks into cash, as stocks are not counted as income and are not taxed until sold and profits are realized; second, by borrowing from banks against their stocks, thereby lowering the interest rate on the loan, which allows them to obtain cash while repaying the debt at low interest.
The Romans were the first to invent sales, income, and inheritance taxes. One interesting tax was the beard tax imposed by Russian Tsar Peter the Great in the 18th century, intended to align with European fashion and eliminate the bearded image predominant in Russia, charging 100 rubles for merchants, 60 rubles for commoners, and 30 rubles for rural areas and clergy.
In Italy, there exists a system known as income scale, which has enabled the Italian government to monitor the spending of Italians if it exceeds certain limits and compare it with the taxes they paid corresponding to their spending rate. If they notice significant discrepancies, the person is summoned for questioning. In July of this year, Italian authorities confiscated $131 million from Amazon's Italian branch in connection with tax fraud and irregular labor practices. This model could be adapted locally to monitor Value Added Tax on consumer goods and the 20% income tax imposed on foreign investors in the Kingdom, ensuring compliance when a specified financial threshold is exceeded and investigating any individuals involved in suspected fraud or tax evasion.
It should be noted that this does not include the regional offices of foreign companies, which have been granted a thirty-year tax exemption that can be extended. Benjamin Franklin, whose image appears on the hundred dollar bill, stated, "There are two certainties in life: death and taxes."
