Reform of tax and market regulations are the top priorities for the kingdom's lawmakers, John Xefos, head of the Riyadh office of US law firm Baker & McKenzietold MEED's corporate and project finance in the Middle East conference on 16 October. He argued that the kingdom is also well on track to encouraging more foreign investment, but there is a challenge in reconciling old laws with the new system.
'The first draft of a new tax regime was put on the table about six years ago and is still being talked about,' said Xefos. 'Tax holidays are being abolished, the top corporate tax bracket is being reduced to 30 per cent from 45 per cent and losses can now be carried forward, which is important for highly-capitalised investments.'
Major changes are now under way in the capital market regulations, of which the new Saudi stock market, Tadawul, is the latest evidence. Other changes will involve streamlining the settlement procedure and increasing transparency (MEED 19:10:01; 12:10:01).
'I was told on 13 October that the capital markets law will come out of the committee of the Majlis al-Shura (consultative council) soon,' said Xefos.
The Saudi Arabian General Investment Authority (SAGIA) was praised by Xefos for its role as a catalyst for creating a more welcoming investment climate. 'If you look at the SAGIA mandate, it is designed to be the catalyst for change,' he said. 'There are areas closed to foreign investment but it is evident that this is a matter of how you describe your project. The government wants to see as many projects approved as possible.'
However, some contradictions have been found between the old legal code and new regulations. 'Regulations are not always clear cut,' he said. 'A problem in the electricity sector is a 1972 law, which in essence says the government is the monopoly buyer. We are in the process of preparing a paper for SAGIA explaining what the issue is.' The law effectively challenges the legality of deregulating the sector, which is one of the government's key economic aims.
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