Taxes are an integral part of our daily lives. They are more than just numbers you pay to the government; they are the foundation for building strong and sustainable societies. It is worth noting that understanding taxes is not only for accountants or economists, but rather an essential life skill for every individual who wants to control his money better. So whether you are a student, employee, or entrepreneur, gaining basic knowledge about taxes can save you a lot of money and time and help you avoid getting into legal problems. This guide will take you on an exciting journey to understand the basics of taxes in a simplified and transparent way, so that you can deal with them confidently and clearly.
To understand taxes well, you must first understand what they are: The government imposes mandatory fees on individuals and companies to raise the necessary funds to finance their activities and public expenditures. It is a major tool for financing public services like education, health, infrastructure, and security. Payers do not receive direct or specific services or benefits in exchange, indicating a non-direct or proportional relationship between the tax and citizens' benefits.
The government imposes a tax as a mandatory fee on individuals and companies to raise the necessary revenues to finance their public expenditures. People pay these fees without expecting a direct or specific benefit from the government in return.
Legally speaking, the state or local authorities impose a tax as a financial obligation on citizens and institutions, adhering to specific rules and laws. According to the definition of the Organization for Economic Co-operation and Development (OECD), taxes are obligatory payments imposed without a direct return in the form of services or goods.
To understand taxes, you must know that their types vary in the Kingdom of Saudi Arabia, including direct and indirect taxes, which aim to regulate the economy and generate financial resources for the state. These types are described below:
The income tax is one of Saudi Arabia's most critical direct taxes. Individuals and institutions impose it on income resulting from their commercial activities. This tax includes:
It is worth noting that the income tax rate increases with the increase in realized profits, as a percentage is deducted from profits exceeding a certain limit.
It is also known as capital tax. To understand taxes, you must know that this tax amounts to 20% of the net profits of companies operating in the Kingdom. It is worth noting that they differ from those imposed on individuals, as they require special adjustments according to the type of activity and the revenues resulting from it.
Non-residents who receive income or benefits from a person residing in the Kingdom are subject to a withholding tax. The non-resident is responsible for withholding a specific tax percentage and paying it to the Zakat Tax and Customs Authority. The percentage here ranges between 5% and 20%, depending on the nature of the payments.
Indirect taxes are imposed on goods and services that are not visible to the consumer because they are added to the final product's price. Examples of these taxes include:
Most goods and services in the Kingdom are subject to a value-added tax of 15%. To understand these taxes, you must know that they are paid by the final consumer and collected at multiple stages of production and distribution.
It aims to protect local industries and regulate foreign trade by imposing it on goods imported into the Kingdom.
It is imposed on harmful goods, such as tobacco, soft drinks, and energy drinks, in varying proportions, up to 100%, to reduce consumption and protect public health.
For you to understand value-added taxes and how to calculate them, there are two main methods:
This method is used when the selling price does not include tax. In this case, the tax is calculated by adding the tax percentage to the original selling price. The following formulas can be used:
This method is used when the selling price includes value-added tax. Here, the added tax is calculated and excluded from the total price. The following formulas can be used:
Let's take an example of calculating value-added tax (VAT) at 15% with a sale amount of SAR 3,000 so you can understand these taxes more clearly.
If the selling price without tax is 3000 riyals, the tax added to it will be 450 riyals. Therefore, the final price paid by the buyer is 3450 riyals.
If the declared selling price, including tax, is 3,000 riyals, the added tax amount is 391.30 riyals. Therefore, the net amount of the item without tax is 2608.70 riyals.
| Type of Tax | Rate | Tax base | tax |
| Outputs | VAT on revenue (15%) | 1000 | 150 |
| Outputs | Exports (0%) | 1500 | 0 |
| Outputs | Exempt (0%) | 1000 | 0 |
| Total output | 3500 | 150 (1) | |
| Input | VAT on purchases (15%) | -100 | -15 |
| Input | Reverse charge (15%) | -1000 | 0 |
| Total input | -1100 | -15 (2) | |
| Net tax payable (1) - (2) | 135 |
This tax is deducted from any non-resident person's income from sources within the Kingdom. To calculate the withholding tax, you must first know the category to which the non-resident person belongs, as these categories determine the percentage of tax that is applied. It is worth noting that the calculation process is done in simple steps, namely:
To understand these taxes more clearly, let us assume that a non-resident consultant in the Kingdom of Saudi Arabia earns fees amounting to 15,000 Saudi riyals from his work in the Kingdom, and the tax rate applied to this category is 15%. So, let's calculate the withholding tax due and the associated steps for this advisor:
So, the withholding tax due on the consultant's fees is 2,250 Saudi riyals, and after deducting this tax, his net fees will be 12,750 Saudi riyals.
To calculate the excise tax imposed on a specific product, you must first know the tax rate applied to that product. Once you know this, you can easily calculate the tax value using the following equation:
We will assume that we are dealing with a pack of cigarettes whose price is 20 riyals, and the tax rate applied to it is 100%. So, to calculate the value of the excise tax imposed, we use the following equation:
To calculate the final selling price of a pack of cigarettes after adding the tax, we add the tax value to the price of the original product:
This method allows us to calculate the total amount that the consumer will pay for a pack of cigarettes after the excise tax.
Qoyod plays a vital role in facilitating the recording and tax management process for business owners and accountants in the Kingdom of Saudi Arabia to facilitate beginners' understanding of taxes by providing advanced accounting and electronic invoicing solutions. These solutions improve the efficiency of financial operations and compliance with tax laws, which reflects positively on businesses. Here are the most important points that distinguish Qoyod's role in this field:
The Qoyod platform enables companies to track output and input tax accurately for each tax rate. This accurate tracking makes it easier for companies to submit correct tax returns, reducing the possibility of errors and delays.
Qoyod provides the feature of automatically generating a tax return based on the information registered in the system. This feature saves companies the time and effort spent preparing tax returns manually and ensures that the returns are submitted on the specified dates without any hassle.
Qoyod ensures that all tax procedures comply with local laws and regulations. This feature means that companies will not have to worry about legal compliance, as Qoyod monitors changes in tax legislation and updates the system accordingly, protecting companies from potential legal risks.
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