Introduction

Taxes play a significant role in the economic development of countries; they are a fundamental pillar of revenue that any country relies on to fund its facilities and projects, aiming to elevate its economy, which in turn benefits the state as a whole. Nations utilize the amounts collected from taxes—along with other sources of income—to spend on health, education, security, defense, and other essential facilities, as well as economic projects indispensable to any country. Given that the state's aim of imposing taxes is to enhance its economy rather than burden taxpayers with financial obligations, many countries consider the taxpayer's burden when legislating tax laws, offering the opportunity to pay taxes in installments. The Kingdom of Saudi Arabia has adopted this approach in its tax legislation, allowing for tax installment payments under specific conditions and requirements. If a taxpayer fulfills these, they have the right to request their due taxes to be paid in installments. The regulations and executive bylaws related to income tax and VAT in the Kingdom include provisions for tax installment payments as follows:

Tax Installments: An Economic Necessity

Firstly, the provisions related to the installment payment of income tax are found in the Income Tax Law and its executive bylaws. Article 71 (a) of the Income Tax Law states that "the Minister has the authority to allow installment payments of the amounts due by the taxpayer if there are sufficient reasons and justifications within the framework of the guidelines and conditions set by the bylaws, and he has the right to delegate this authority to the General Director of the Authority (currently the agency) as he sees fit. He also has the right, or his delegate, to cancel the installment payment if it is found that the public treasury's rights are at risk." Similarly, Article 65 of the executive bylaw of the same law grants the taxpayer the right to request installment payments of the due taxes and penalties, provided that the taxpayer submits a written request to the Zakat, Tax and Customs Authority, specifying the tax obligation amount, the financial periods involved, the reasons for the inability to pay the tax obligation on the due dates, accompanied by supporting documents. The request should include the number of installments, the value of each installment, and any upfront payments, with the Authority committed to reviewing the request and responding within thirty days. The article also stipulates that the installment period should not exceed the number of years for which the tax obligation has accumulated on the taxpayer, and that installment does not cover taxes and penalties withheld at source and committed to be handed over to the public treasury, granting the Authority the power to cancel the installment plan and require the taxpayer to pay the full amount due if they fail to pay two consecutive installments or if the public treasury's rights are at risk. Despite the legislator's good intention in allowing taxpayers to request tax installment payments, the provision related to the possibility of canceling the installment if the public treasury's rights are at risk is somewhat flawed and vague for not specifying those situations where the public treasury's rights are considered at risk.

Framework for Income Tax Installments

Secondly, the regulator followed the same approach regarding VAT in terms of the installment process; it allowed the taxable person to pay it in installments under conditions and requirements stated in Article 60 of the executive bylaw for the VAT system. This article decided that the Authority could permit the taxable person to pay the tax in installments, provided that evidence is presented showing their inability to pay the tax when due. This provision differs from the one related to income tax, as it adds the taxable person's right to installment if it is shown that they would face difficulties in paying it in one lump sum. They are also required to submit an application accompanied by supporting documents, specifying the due amounts, the tax periods, and the reasons preventing payment on the scheduled dates, with the Authority obligated to notify the taxable person of the acceptance or rejection of the request within (20) days from its receipt. This provision does not differ from those related to income tax in terms of granting the Authority the power to cancel its decision on installment if it finds that the public treasury's rights are at risk, albeit with different wording.

Mechanics of VAT Installment Payments

Thirdly, after addressing the installment payment provisions in the income tax and VAT systems, it is evident that in the former, a taxpayer may request tax installment payments under the conditions mentioned above, and in the latter, a taxable person—whether natural or legal—may request the installment payment of the due VAT as per the system's stipulated conditions. It is worth noting that in the case of installment payments, the taxpayer or taxable person must adhere to the installment schedule to avoid cancellation of the installment plan, as they would then be obligated to pay all due tax amounts in one lump sum, imposing a financial burden on the taxpayer or taxable person.