Abstract
A difficult problem arises in situations where tax is used for religious reasons. There is a potential for a clash between religious tax and WTO rules. If trade rules are held as strictly as they are as applied currently, it could lead to a devastating effect. Such is the case with the Saudi Arabian tax system, which is based on religion. This religious tax has some discriminatory elements favoring Moslems. International tax law has allowed this result, being bilateral and subject to negotiation, bargaining, and diplomacy, and has not restrained religion-based discrimination. International trade law, on the other hand, if applied to this kind of religious discrimination, may (1) apply and make illegal this discrimination, and (2) be subject to stronger procedural arrangements.
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Notes
- 1.
Koran 18:46.
- 2.
Thanks to Professor Joel Trachtman for this comment.
- 3.
In fact, the problem of introducing foreign laws or modifying local laws that are based on different values is very complicated. Professor Alford writes, “Laws premised on the values and institutions of an economically advanced capitalist democracy will not generate identical results when transplanted to a different setting” Alford (1992, p. M5). This can be applied to different laws including tax, trade, etc.
- 4.
Dr. Al-Sultan, a prominent Saudi accountant, claimed that this is primarily an information issue; because the Saudi government cannot verify the personal information of non-Saudis, it cannot impose zakat on them. See Al-Sultan (1995, p. 158).
- 5.
In addition to preaching during Friday prayers, religious scholars have also conducted lessons during which they express some of their views. Most of this is, unfortunately, audiotaped in Arabic.
- 6.
- 7.
Interpretations have long been subject to debate; consider this contradictory verse: “Surely those who believe, and those who are Jews, and the Christians, and the Sabians, whoever believes in Allah and the Last day and does good, they shall have their reward from their Lord, and there is no fear for them, nor shall they grieve.” Koran 2:62.
- 8.
Koran 5:29.
- 9.
GATT, I.
- 10.
The King has the supreme authority in the kingdom, supervising government operations, ratifying laws, ratifying death penalty punishments, approving budgets, and fulfilling other duties.
- 11.
Core principles vary, but all laws or rules must be designed to protect the five essential rights: the protection of life (i.e., prohibiting violence and killing), the protection of family (i.e., prohibiting adultery), the protection of the religion (i.e., prohibiting insulting or cursing religion), the protection of wealth (i.e., prohibiting theft), and the protection of the mind or intellect (i.e., prohibiting alcohol). See also Hunter and Malik (2005, pp. 75–76).
- 12.
Saudi employees are subject to a social security tax. However, its name, “retirement payment,” probably implies to Saudis that it is a retirement investment, rather than a tax.
- 13.
See Zakat and Income Tax Law, art. 2 [hereinafter “Tax Law”].
- 14.
The DZIT of the Ministry of Finance is the only governmental agency with authority to supervise tax and zakat matters, issue regulations, or handling litigations.
- 15.
Until recently, Saudi Arabia had only one income tax treaty, and that was with France. Recently, the Kingdom has executed several more tax treaties, and the list continues to grow. In all these treaties, zakat is treated as a tax. See footnote 35.
- 16.
Article III, 2 stated that: “3. The existing taxes to which this Convention shall apply are in particular: (a) In the case of the Kingdom of Saudi Arabia: i. the Zakat.” Austria–Saudi Arabia, 2006 Income and Capital Tax Convention, March 19, 2006. Identical article found in tax treaties with China, India.
- 17.
The website for the Zakat Foundation of America, an international non-profit organization based in Chicago, USA, can be found at http://www.tzfa.org/a_abtus.html.
- 18.
Saudi Arabia follows the Hanbali Islamic School. See Nafisa Motleb, Law and Social Change in Muslim Countries, the Concept of Islamic Law Held by the Hanbali School and Saudi Arabian Legal System (1975) (unpublished SJD Book, Harvard University) (on file with the Harvard University).
- 19.
According to Islam, zakat, as well as other laws such as criminal and family laws, is a means for implementing God’s words.
- 20.
Regulation issued pursuant to Ministerial Resolution number 393, dated 6/8/1370 H (corresponding to 13/5/1950).
- 21.
Zakat By-Law was issued per Ministerial Resolution number 393, dated 6/8/1370 H (corresponding to 13/5/1950).
- 22.
Zakat By-Law was issued per Ministerial Resolution number 393, dated 6/8/1370 H (corresponding to 13/5/1950).
- 23.
Regulation art. 6.
- 24.
Regulation art. 7.
- 25.
All companies are subject to either zakat or income tax, depending on the nationality. The only exceptions are joint venture companies (sharikat al-muhassah) where partners remain unknown. This is similar to the German still gesellschsft, the Japanese tokumei kumiai, and the French association commerciale en participation. See Hanna (1997).
- 26.
Royal Decree No. 61/5/1, 1964.
- 27.
Initially, in January 2004, the tax rate was to be set at 25%. However, after the bill was approved by Majls A’Ashora (Consultative Cabinet), the business community expressed its deep disappointment with the high rate and the government suggested a reduction of the tax rate to 20%. In May 2004, the lower rate was finally approved, but many businesses continue to request a further reduction of the tax rate.
- 28.
See for example, Alnoyam.
- 29.
Tax Law Art. 8.
- 30.
Tax Law Art. 5(a).
- 31.
- 32.
- 33.
According to the regulation,
A non-resident person with no permanent establishment in the Kingdom who derives income from a source in the Kingdom is subject to tax as follows:
(a) Income stipulated under Article 68 of the Law is subject to withholding provisions of that Article.
(b) A capital gain derived from disposal of fixed and traded assets, or from disposal of shares in a resident company is subject to tax under general provisions of the Law. Reg. 1(2).
Income under article 68 includes: (1) Rent, 5%; (2) Royalty or proceeds (bank interest), 15%; (3) Management fees, 20%; (4) Payments for airline tickets, air or maritime freight, 5%; (5) Payments for international telecommunications services, 5%; and (6) Any other payments specified in the Regulations, provided that the tax rate does not exceed 15%.
- 34.
Tax Law art. 2. It should be noted that the new law preserved the old tradition of not taxing the salaries of employees, a policy designed to attract experts from around the world to the Kingdom. This long-standing policy of exempting workers from taxation was challenged recently when it was suggested that workers earning more than SR 3,000 should be subject to a flat-rate tax of 10%. This suggestion was killed at the Majls. The majority of the Shura members rejected the proposal, a vote of 73 against 47. See, Janardhan (2006).
- 35.
This provision is potentially problematic, as there is no clear definition of “permanent residency.”
- 36.
Regulation art. 2.
- 37.
See Fourth Symposium on Zakat Contemporary Issues (Held in Bahrain Shawwal 17, 1414 A.H. / March 29, 1994 AD), an Islamic symposium in which a statement was issued calling on Islamic countries to impose zakat only and stating that, “imposing taxes is permissible only if there is a real need.”
- 38.
GATT art. III.
- 39.
GATS art. 17.
- 40.
Saudi Arabia Accession Documents: World Trade WT/ACC/SPEC/SAU/3 (September 24, 1997) (Saudi Accession).
- 41.
Saudi Arabia Accession Documents: World Trade WT/ACC/SPEC/SAU/3 (September 24, 1997) (Saudi Accession).
- 42.
Tax holidays are abolished in the new tax law.
- 43.
Saudi Arabia accession documents, GATS/SC/141 (March 29, 2006).
- 44.
Basic Law art. 1.
- 45.
Basic Law art. 1.
- 46.
Basic Law art. 23.
- 47.
Under some conditions Muslim foreigners, such as Gulf countries’ citizens, are granted zakat treatment. Fundamentalists argued for granting zakat treatment to all Muslims trading or conducting business in the Kingdom. In fact, excluding them is viewed by the fundamentalists as a sign of Westernization. See, e.g., Yusuf (1999); see also Taymiyah (1999).
- 48.
GATT art. XX(a).
- 49.
- 50.
US Gambling case, Report of the Panel 6.457.
- 51.
Commentators have already started arguing to include many issues, including women’s and workers’ rights. Howse (1999, p. 131) (arguing for inclusion of international labor standards in WTO through a public morals exception); Jarvis (2000, p. 219) (arguing for use of public morals exception to protect women’s rights); Lopez-Hurtado (2002, p. 719) (discussing WTO compatibility of government-sponsored social labeling initiatives). See Rosas (2003, pp. 75, 78) (suggesting “certain cultural or religious traditions” as example of GATT drafters’ original intent for inclusion of a public morals clause).
- 52.
Charnovitz (1998, pp. 705–713) (surveying historical evidence of contemporary understanding of morals clauses in bilateral and multilateral international trade agreements prior to GATT).
- 53.
Recent legal scholarship reviewed WTO Trade Policy Reviews and revealed that “products currently subject to morality-based import restrictions include alcohol and pornographic or obscene materials to name just a few” Marwell (2006, pp. 802, 817–818) (citing also child pornography, gambling equipment or games of chance, hate propaganda, illegal drugs, lottery tickets, non-kosher meat products, posters depicting crime or violence, stolen goods, treasonous or seditious materials, counterfeit money, automobile radar detectors, and videotapes and laser discs).
- 54.
Appellate Body Report, United States – Measures Affecting Imports of Woven Wool Shirts and Blouses from India 15–16, WT/DS33/AB/R (Apr. 25, 1997) (discussing the burden of proof imposed on a complaining party to establish an initial violation of WTO agreements).
- 55.
Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services 5, 296, WT/DS285/AB/R (Apr. 7, 2005).
- 56.
Appellate Body Report on US – Gasoline WTO Dispute Settlement Panel, United States Standards for Reformulated and Conventional Gasoline, WTO Doc., WT/DS2/R (Jan. 29, 1996) [hereinafter US-Gasoline].
- 57.
Panel Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/R (98-1710), 15 May 1998, 7.28.
- 58.
WTO Appellate Body Report: United States – Import Prohibition of Certain Shrimp and Shrimp Products (Oct. 12, 1998), 38 I.L.M. 118, 123–24, 157.
- 59.
WTO Appellate Body Report: United States – Import Prohibition of Certain Shrimp and Shrimp Products (Oct. 12, 1998), 38 I.L.M. 118,¶ 158–159.
- 60.
WTO Appellate Body Report: United States – Import Prohibition of Certain Shrimp and Shrimp Products (Oct. 12, 1998), 38 I.L.M. 118,¶ 158–159.
- 61.
Panel Report, US-Gambling, 6.461.
- 62.
Panel Report, US-Gambling, 6.461.
- 63.
Panel Report, US-Gambling, 6.463.
- 64.
Panel Report, US-Gambling,¶ 6.663–4.
- 65.
Panel Report, US-Gambling, 6.665.
- 66.
Panel Report, US-Gambling, 6.467.
- 67.
Panel Report, US-Gambling, 6.676.
- 68.
Panel Report, US-Gambling, 6.470.
- 69.
For example, the Panel cited two ECJ decisions regarding the right of member states to enact national legislation relating to gambling-related activities (specifically, cross-border access to lotteries and the operation of gambling equipment). See Panel Report, US-Gambling, 6.473.
- 70.
Panel Report, US-Gambling, 6.471.
- 71.
Israel prohibits the importation of lottery tickets and the Philippines restricts foreign ownership of gambling operations. See Trade Policy Review – Israel – Report by the Secretariat, WT/TPR/S/58, Table III.8 (1999) and Trade Policy Review – The Philippines – Report by the Secretariat, WT/TPR/S/59, Table III.11 (1999).
- 72.
Panel Report, US-Gambling, 6.473.
- 73.
Panel Report, US-Gambling, 6.474.
- 74.
Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161/AB/R, WT/DS169/AB/R, adopted January 10, 2001, DSR 2001:I, 5.
- 75.
AB Korea, 160 (citing 2 The New Shorter Oxford English Dictionary 1895 [1993]).
- 76.
Appellate Body, Korea – Beef, 160.
- 77.
AB, p. 304.
- 78.
AB, p. 306.
- 79.
AB, p. 308.
- 80.
Panel Report, US-Gambling, 6.461.
- 81.
Panel Report, US-Gambling, 6.461.
- 82.
Panel Report, US-Gambling, 6.474.
- 83.
The distinction between siyasah and fiqh is a very controversial. See, e.g., Taymiyah (2000).
- 84.
There are numerous sources. See, e.g., Mohammed Al-Albany, lecture: Ruling on taxes under Islam, stating that one has no financial obligation except zakat except in urgent and unexpected circumstances, such as wars. http://audio.islamweb.net/audio/index.php?page=FullContent& audioid=109346. Also, Safer Alhowlaiy, a very conservative Saudi scholar, argues against taxation altogether. See http://www.alhawali.com/index.cfm?method=home.SubContent& contentID=4136&keywords=%D8%B6%D8%B1%D9%8A%D8%A8%D8%A9.
- 85.
This book is perhaps the only book documenting the tax history in modern Saudi Arabia.
- 86.
Mistrials Regulation No. 340 (1956).
- 87.
Old Tax Law art. 1.
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Althunayan, T. (2010). Tax and Religion: Saudi Arabia Tax System. In: Dealing with the Fragmented International Legal Environment. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-04678-0_3
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