Saudi Arabia imposes “Zakat” Tax on Vacant land

Saudi Arabia’s Shoura Council is considering taxing unused land, in a move that could help uncork a serious housing bottleneck in the world’s top oil exporter.

The relevant committee in the Shoura Council has started studying a draft for a new system to collect Zakat (Islamic tax) on commercial and professional activities, to put in place a mechanism to impose Zakat on vacant land.

The committee had discussed taxing vacant land in a meeting with members of the Saudi Chambers of Commerce and Industry and representatives from real estate companies.

Economists and housing experts say the kingdom’s house and land prices are rising at an average of 10 percent a year thanks to a rapidly growing population and a land shortage.

“In Riyadh you can see many large plots of undeveloped land in central locations surrounded by housing. If it became less attractive for people to hold undeveloped land, it would allow construction of housing and infrastructure, dealing with some of the bottlenecks in the economy,” said Paul Gamble, head of research at Jadwa Investment in Riyadh.

Surging land prices have created a market for real estate, with speculators aiming to resell the land for a quick profit. By contrast land development incurs higher costs and a longer time before profit is realized, as al-Eqtisadiah daily reported.

The impact of any law on land speculation would depend on the details of the legislation, said Gamble.

“People would be less inclined to speculate on raw land. But the question is what passes as undeveloped land? If you only need to run a pipe underneath it or clear it, the potential Zakat could be avoided and it would still be easy to flip the land,” he said.