Proposed amendments to the VAT Law

20 February 2022 - The Zakat, Tax and Customs Authority (ZATCA) recently issued proposed amendments to the KSA VAT Law. The proposed amendments, which are now available on the Public Consultation Platform (Istitla’a), aim to amend Article 42 and 43 and add a new article to the VAT Law. These changes are expected to impact the late filing and late payment penalties, as well as the penalty for failure to submit a VAT return, and the interest on late payment penalties. The proposed changes also introduce new provisions on the seizure and sale of assets. 

Considering these developments, businesses have been encouraged to provide their feedback on the proposed amendments through the Public Consultation Platform (Istitla’a) before the deadline of 12 March 2023. This will assist ZATCA in further refining and implementing the proposed amendments.

What are the proposed amendments?  
  • Late filing and late payment penalties – The proposed changes to late filing and late payment penalties include changing the penalty to 2% of the total owed tax value, with a maximum of 24% of the tax value that should have been reported.  This is instead of the current penalty of 5% to 25% of the required declared tax value. The new proposed penalty shall start from the day after the specified period has passed and can be based on the declaration submitted by the taxable person or an assessment by ZATCA.
  • New penalty for failure to submit VAT return – Taxpayers that are required to submit a monthly return will face a minimum fine of SAR 1,000 for failing to do so within the specified period, while those required to submit quarterly returns will face a minimum fine of SAR 500. Repeat violations in the same calendar year may result in the fine(s) being doubled. 
  • Interest on late payment penalties – Article 43 outlines the late payment penalties for failing to pay the tax owed within the established timeframe, with a penalty equal to 2% of the unpaid tax value per month and a maximum penalty of 50% of the unpaid tax value. The proposed amendments also include provisions to penalize taxpayers who have over-recovered VAT through formal refunds, with the calculation of the penalty starting thirty days after notification of the refund.
  • An additional payment of 1% of the unpaid tax value for each month or part thereof will apply in cases where ZATCA amends the tax value (i.e., in situations where there has been an over-recovery of VAT on a refund claim). This excludes cases where the taxpayer submits a voluntary disclosure. The calculation of this penalty starts 30 days after the notification of VAT return amendment or the law amendment goes into effect, whichever is later.
  • New article – An additional article has been proposed relating to the seizure and sale of assets, as well as seizure of funds with the aim of collecting unpaid amounts for ZATCA. This aligns with the provisions in the Corporate Income Tax Law and the Unified Customs Law which ensures uniformity across all applicable taxes falling under the ZATCA’s jurisdiction.

Next steps:

The proposed amendments should be welcomed by taxpayers; the reduction in the level of penalties, and in particular the amounts of interest charged should be of benefit to all.  Our team of experts can help you stay up to date with these proposed changes, provide advice on the impact of these changes on your business, and assist in submitting your comments and feedback to ZATCA.

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