Saudi Arabia's tax & regulatory framework strongest in G20

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Saudi Arabia has the strongest tax and regulatory framework across all of the G20 countries, The Ernst & Young’s (EY) G20 Entrepreneurship Barometer 2013 showed.

The study was based on a survey that canvassed more than 1,500 leading entrepreneurs and other qualitative data across G20 countries.

It also relied extensively on EY’s own research of more than 200 governments’ leading practices.

Saudi Arabia ranks first in tax and regulation, ahead of Canada, the UK, Japan, Germany and the EU.

“Saudi Arabia is one of the best performing, rapid-growth economies in the barometer, thanks to its laudable efforts to reform its overall business environment in the recent years,” said Ashraf Abu-Sharkh, strategic growth markets’ leader at EY MENA.

“Its ranking in tax and regulation is a testament to the streamlined tax regime in the country. As the government is gradually diversifying away from oil, a strengthened culture of entrepreneurship is developing.”

The tax system in Saudi Arabia imposes a particularly light administrative burden on entrepreneurs. There are only three payments to be made each year, whereas double figures are common in other G20 countries. Similarly, the average time spent by businesses on tax affairs amounts to just 77 hours, which is the lowest (average taken from 2010 to 2012). In addition, the cost of setting up a business is approximately one third less than the G20 average. In terms of employment regulations, labor tax in the Kingdom is the lowest.

“This year, the barometer calls on G20 governments to collaborate with entrepreneurs in order to kick-start their economies and create jobs,” Abu-Sharkh added.

Among G20 countries, Saudi Arabia ranks 20th, which means fostering an entrepreneurship culture is a primary challenge. In the survey, Saudi entrepreneurs pointed out the attitudes towards risk and fear of failure, which are reflected in local rules, such as the high financial costs of business failure. Insolvency costs in Saudi Arabia are one of the highest among G20 countries.

“From our discussions with business owners in Saudi Arabia, we found that risk aversion is a tough challenge to overcome from both entrepreneurs and investors. As the country invests more in entrepreneurial initiatives, more role models will need to emerge to encourage and inspire future entrepreneurs,” Abu-Sharkh further said.

One of the potential improvements is the country’s coordinated support ranking in the barometer. This reflects local entrepreneurs’ views about trends on three constituent elements — networks, mentoring and incubators. Saudi Arabia scores below the rapid-growth countries’ average, thus highlighting the need for a stronger emphasis on and backing for this area.

Nevertheless, 43 percent of entrepreneurs said that access to business incubators has improved in the past three years and Saudi Arabia comes 12th, ahead of the EU, the UK, Japan and the US.

Entrepreneurs provide one of the main engines of growth in any healthy economy.

They act as vital agents of change by developing new products and services, implementing more efficient production methods, and creating new business models and industries. They generate jobs, support local communities and build prosperous societies.

For all these reasons, there is growing recognition of entrepreneurs’ importance across the G20. Many countries have introduced a range of programs and policy initiatives to help boost entrepreneurship.

But, as this report reveals, there are still huge areas where G20 countries need to take urgent action to improve support for their entrepreneurs.

The EY G20 Entrepreneurship Barometer 2013 is designed to help leading countries benchmark their progress and performance on this vital issue.

It enables each G20 nation to identify current strengths in its entrepreneurial environment, as well as the main opportunities for further development.

As a result, the Barometer provides a powerful framework to help countries understand and improve the ecosystems that are vital to the success of the entrepreneurs of the future.

This article was first published in the Saudi Gazette on Sept. 30, 2013.