In a move aimed at enhancing tax compliance and supporting the private sector, the Zakat, Tax and Customs Authority the simplified guide for extending the initiative to cancel fines and exempt from financial penalties, in implementation of the ministerial decision to extend the initiative for an additional 6 months, to continue until June 30, 2026. This step comes as a continuation of the government’s efforts to mitigate the economic impact on establishments and encourage taxpayers to rectify their financial situations.
Context of the initiative and its economic importance
The initiative to waive fines is one of the most important stimulus packages launched by the Kingdom in recent years, aligning with the goals of Vision 2030 to empower the private sector and provide an attractive investment environment. Historically, such initiatives began as part of the economic measures to address the repercussions of the COVID-19 pandemic, but they have evolved into an effective tool for increasing voluntary tax compliance.
This extension is expected to have a tangible positive impact at both the local and national levels, as it gives companies, especially small and medium-sized enterprises, an opportunity to boost their cash flow instead of depleting it in paying accumulated fines, thus supporting business continuity and economic growth.
5 illustrative examples of how to benefit from the initiative
The guide included 5 realistic scenarios illustrating how to benefit from the exemptions, as follows:
1. The retail sector and delays in VAT declarations
In the first example, a taxpayer owns a perfume retail establishment and was late in submitting their VAT return for the third quarter of 2021. Normally, the authority imposes a late filing penalty of up to 25%, in addition to a 5% late payment penalty for each month of delay. Under the initiative, if the taxpayer submits the return and pays the principal amount of tax due before June 30, 2026, they will be completely exempt from all penalties.
2. Selective goods and delayed payments
The second example concerns a soft drink company that was late in paying excise tax for the period of January/February 2024. The system imposes a 5% monthly penalty on the outstanding amount. To benefit from the initiative, the company must pay the full principal amount of the tax due within the initiative's timeframe, thereby waiving all late payment penalties.
3. Violations of electronic invoicing and record keeping regulations
The third example illustrates the case of a coffee shop that complied with issuing invoices but neglected to properly store them, resulting in their spoilage. After being warned and given a 60-day grace period without correction, a fine of 1,000 riyals was imposed. The violation was then repeated, increasing the fine to 5,000 riyals. The shop owner can benefit from exemption from the 5,000 riyal (unpaid) fine, provided they submit all required declarations, pay the original tax due, and confirm there are no other serious violations.
4. Tax disclosure for foreign establishments
In the fourth example, a foreign entity discovered it had failed to disclose certain income tax obligations. This failure to disclose incurred late payment penalties. The solution lies in the entity amending the relevant return, disclosing the tax, and paying it to the authority before the end of the initiative period, thus entitling it to exemption from late payment penalties.
5. Installment plans for those facing financial difficulties
The fifth example concerns owners of commercial centers who have accumulated tax returns from previous years (such as 2021). If the taxpayer wishes to rectify the situation but lacks the full liquidity, they can apply for an installment plan for the outstanding tax amount. The application must be submitted and approved during the initiative period, and the taxpayer must commit to paying the installments on schedule until completion to benefit from the penalty waiver.
Summary
These examples demonstrate the Authority's flexibility in dealing with taxpayers, as the primary condition for benefiting from the penalty waiver is payment of the outstanding principal tax amount. The Authority urges all taxpayers to take advantage of this opportunity to settle their financial obligations before the mid-2026 deadline.
