Q. The paragraph (e) in the article 17 of the Saudi income tax explained how depreciation expense is calculated for any group of assets. (2.0 Marks).

Required:

1. Discuss In Detail This Article
2. Give a numerical example explaining the applicability of the paragraph (e) in the article 17 of the Saudi income tax.

Article 17: Depreciation
(a) Except for land, a depreciation may be deducted for a taxpayer's depreciable tangible or intangible assets which lose value because of wear and tear or obsolescence and which are wholly or partly used in the generation of taxable income, and remain to have a value after the end of the taxable year.

(b) Depreciable assets are classified into groups and depreciation rates as follows:

(1) Stationary buildings: five percent (5%).

(2) Movable industrial and agricultural buildings: ten percent (10%).

(3) Factories, machines, engines, hardware and software (computer software) and equipment, including passenger and cargo vehicles: twenty five percent (25%).

(4) Expenses for geological surveying, drilling, exploration, and other preliminary work to exploit natural resources and develop their fields: twenty percent (20%).

(5) All other tangible and intangible depreciable assets not included in pervious categories, such as furniture, planes, ships, trains and goodwill: ten percent (10%).

(c) The depreciation deduction for each group is determined in accordance to paragraphs (d) to (l) of this Article.

(d) The depreciation deduction for each group is calculated by applying its depreciation rate determined in accordance with paragraph (b) of this Article against the balance of the value of such group at the end of the taxable year.

(e) The balance of the value of each group at the end of the taxable year is the total of the balance of the value of the group at the end of the previous taxable year after the depreciation deduction in accordance with this Article for the previous taxable year, and fifty percent (50%) of the cost base of assets in use added to the group in the current and previous taxable years after the deduction of fifty percent (50%) of the compensation received from the assets disposed of during the current and previous 11 taxable years, provided that the balance does not become in the
negative.

(f) If the taxpayer converts its assets to personal use or if the asset ceases to be used in the generation of taxable income, this action by the taxpayer is deemed to be a disposal of the asset for its market value.

(g) When fifty percent (50%) of the compensation of the assets disposed of during the current and previous taxable years exceeds the balance of the value of the group at the end of the taxable year, regardless of the amount of such compensation, the value of the group shall be reduced to zero and the excess is included in the taxpayer's taxable income.

(h) If the balance of the value of the group at the end of the year, after allowing for the deduction in accordance with paragraph

(d), is less than one thousand (1,000) riyals, the amount of the balance may be deducted.

(i) Where all the assets in a group are disposed of, the balance of the group may be deducted at the end of the year.

(j) Where a land is bought or sold with constructions thereon, the value shall be reasonably apportioned to arrive at a separate value of the construction.

(k) In case a part of the assets is used for the generation of taxable income, a depreciation deduction is allowed for a part of the asset value against th  part of the asset used in the generation of the taxable income.

(l) As an exception to the provisions of the previous paragraphs, assets under Build, Operate and Transfer (BOT) or Build, Own,
Operate and Transfer (BOOT) contracts may be depreciated over
the contract period or over the remaining period of the contract,
if acquired or renewed during that period.

Answer rating: 100% (QA)

a The Article 17 of Saudi Income Tax provides the provisions regarding the calculation of depreciation expense for the assets in the business The Arti... View the full answer