Riyadh – Mubasher: Saudi Arabia is looking to double the current rate of Islamic taxes paid by local banks to reach 20% in a bid to shore up its income sources, people familiar with the matter said.

The oil-rich kingdom’s General Authority of Zakat and Tax (GAZT) is currently in negotiations with lenders to increase the zakat levy to reach the 20% rate paid by foreign banks in the Saudi market, Bloomberg News reported on Thursday, citing sources who declined to be named.

In 2018, the Islamic tax for local banks was raised to 10% of profits from 2.5% and applied retrospectively in some cases to 2002.

“Banks may still get the effective tax rate at the mid- to lower end of the corridor of 10%-20% by returns generated on specific investments,” banking analyst at Bloomberg Intelligence in Dubai, Edmond Christou, said.

Still, if banks succeed in reducing the zakat rate, they will have to adopt a “cautious approach to dividend payouts”, Christou added.

The world’s biggest oil exporter aims to boost its public revenues in an effort to finance the budget deficit.

Although the Saudi government forecast the budget deficit to shrink in 2019, experts noted that these projections were based on unrealistic hopes for higher oil prices.