Higher Electricity Bill, Lower Zakat and Income Tax: A Worked SOCPA Example With One Company's Accounts Before and After the New Tariff

From 1 January 2027, businesses in Saudi Arabia pay more for electricity (Saudi Press Agency). Saudi Energy Company's commercial consumption tariff rises from 22 to 25 halalas per kWh for the first 6,000 kWh a month and from 32 to 35 halalas above that, and the monthly meter service charge gives way to a fixed monthly tariff set by breaker capacity: 350, 500, 700 or 900 riyals for a commercial meter (Saudi Energy).

For a SOCPA Fellowship candidate, what matters is what happens next. The bill is a deductible operating expense, so a bigger bill means a smaller profit, and a smaller profit means less income tax on the share owned by non-Saudi, non-GCC partners and less zakat on the share owned by Saudi and GCC partners. On the foreign share, every extra riyal on the bill saves 20 halalas of income tax; on the Saudi and GCC share, it saves 2.5 halalas of zakat. The business still pays more overall.

This article follows one company's accounts before and after the new tariff, step by step, the way the Zakat and Tax paper expects you to work it.

The company and its bill: electricity expense rises by 26,400 riyals a year

Take a trading company in Riyadh, owned 60% by Saudi partners and 40% by a non-GCC partner. Its store uses 50,000 kWh a month, and its 200 to 299 ampere breaker puts it at 700 riyals a month in the new fixed tariff. To isolate the effect of electricity, everything else in its accounts stays the same.

Electricity expense (SAR a year)	Before	After
Consumption charge	184,800	202,800
Fixed tariff (replaces the meter service fee)	Meter fee left out	8,400
Total	184,800	211,200

The consumption charge is 6,000 × 0.22 + 44,000 × 0.32 = 15,400 riyals a month before the change, and 6,000 × 0.25 + 44,000 × 0.35 = 16,900 after (tariff from 2027, tariff until 31 December 2026). Two simplifications keep the numbers round. The fixed tariff replaces the meter service fee on today's bill, which Saudi Energy does not publish by breaker size, so the example leaves that fee out and the true increase is lower by twelve months of it. And the year is treated as twelve 30-day bills: the fixed tariff is pro-rated by bill days, so a full year actually costs about 8,517 riyals (Saudi Energy's tariff questions). On those terms the yearly expense rises by 26,400 riyals.

VAT is left out too. A VAT-registered company making taxable supplies deducts the 15% VAT on the bill as input tax, so it is not part of the expense (ZATCA); the mechanics are in VAT Input Tax vs Output Tax in Saudi Arabia.

Step one: check that the expense is deductible

An expense lowers income tax only if it is deductible. The Income Tax Law allows the ordinary and necessary expenses of earning taxable income (Article 12), and its Implementing Regulations set four conditions (Article 9): the expense is actual and supported by documents such as the tax invoice, it relates to earning taxable income, it belongs to the tax year, and it is not capital in nature. For zakat, the Implementing Regulations for Zakat Collection accept expenses charged to the income statement in arriving at adjusted net profit when they are actual, connected with the activity, and supported by documents ZATCA accepts (Article 62). The electricity for the company's store meets both tests; a partner's home bill paid by the company would meet neither.

Step two: profit falls by the full increase

Income statement (SAR)	Before	After
Revenue	5,000,000	5,000,000
Expenses other than electricity	(4,415,200)	(4,415,200)
Electricity	(184,800)	(211,200)
Profit before zakat and income tax	400,000	373,600

Profit falls by 26,400 riyals, exactly the increase in the bill. To keep the example clear, book profit is also the income tax base and the adjusted net profit for zakat, and the year's own zakat and income tax are left out of the accounts.

Step three: income tax falls by 20% of the increase on the foreign share

Income tax is 20% of the tax base, that is taxable income after deductible expenses, on the share owned by non-Saudi, non-GCC partners (Income Tax Law, Articles 2 and 7); the GCC share is treated as Saudi and pays zakat instead.

Income tax (SAR)	Before	After
Taxable profit	400,000	373,600
Foreign partner's share (40%)	160,000	149,440
Income tax (20%)	32,000	29,888

Income tax falls by 2,112 riyals, which is 26,400 × 40% × 20%. How a mixed company splits between the two levies is set out in Corporate Income Tax in Saudi Arabia.

Step four: zakat falls by 2.5% of the increase on the Saudi and GCC share

Under the Implementing Regulations for Zakat Collection (Ministerial Resolution 1007 of 19/8/1445H, as amended by Resolution 1248 of 11/10/1446H), the base starts from the balance sheet at the end of the zakat year (Article 17). Equity at the year end, certain liabilities and any difference between adjusted and book net profit are added (Article 23), and non-zakatable assets such as net fixed assets are deducted (Article 26). The year's profit is part of year-end equity, so a smaller profit means a smaller base. The example uses a Hijri zakat year, so the rate is 2.5% without adjustment (Article 15).

Zakat (SAR)	Before	After
Capital	1,000,000	1,000,000
Retained earnings at year end (600,000 brought forward plus the year's profit)	1,000,000	973,600
Less: net fixed assets	(800,000)	(800,000)
Zakat base	1,200,000	1,173,600
Saudi partners' share (60%)	720,000	704,160
Zakat (2.5%)	18,000	17,604

The company has no debt and distributed nothing during the year, so nothing is added for liabilities and year-end equity is 2,000,000 riyals before the change and 1,973,600 after. Zakat falls by 396 riyals, which is 26,400 × 60% × 2.5%. Notice that the zakat base falls by the full 26,400, just as taxable profit did: the saving is smaller only because the rate is 2.5% rather than 20%.

The regulation also sets a minimum and a maximum for the base. If the computed base falls below adjusted net profit, the base becomes the lower of adjusted net profit and the company's non-deducted assets plus any difference between adjusted and book profit (Article 27); the maximum is year-end equity plus that difference (Article 28). This company's base of 1,200,000 riyals is above its profit of 400,000 and below its equity of 2,000,000, so neither limit applies and the base moves riyal for riyal with profit. On a Gregorian zakat year the rate is adjusted by days: 2.5% ÷ 354 × 365, about 2.578% (Article 15), which some guides truncate to 2.577%. The full method is in How the Zakat Base Is Calculated in Saudi Arabia.

Step five: the net effect

SAR a year	Before	After	Change
Electricity	184,800	211,200	26,400 more
Income tax	32,000	29,888	2,112 less
Zakat	18,000	17,604	396 less
Electricity, income tax and zakat together	234,800	258,692	23,892 more

The lower income tax and zakat give back 2,508 of the 26,400 riyals, about 9.5%. The company is 23,892 riyals a year worse off: a higher expense lowers what is paid on profit, but never by as much as it costs.

Who saves what: the same increase under three owners

Owners	Income tax saved	Zakat saved	Total saved
All Saudi or GCC	None	660	660
60% Saudi, 40% non-GCC (this company)	2,112	396	2,508
All non-GCC	5,280	None	5,280

Ownership decides which levy reacts. The share held by non-Saudi, non-GCC partners pays income tax at 20%, so it saves the most; the share held by Saudi and GCC partners pays zakat at 2.5%. Who falls on which side is the subject of Zakat or Income Tax? Who Pays What in Saudi Arabia.

How the Zakat and Tax paper asks it

This example sits in two main topics of the SOCPA Zakat and Tax paper, each weighted 20 to 30%. In Zakat (main topic 2), subtopic 2/3 is the base of payers who keep statutory books, its minimum and maximum included, tested at application and analysis, with the rate under 2/1. In Income tax (main topic 3), subtopic 3/7 is deductible and non-deductible expenses, also at application and analysis, with the tax base and rate under 3/9.

• Deductible first. Check the conditions before computing anything; a capital item goes through depreciation, not the year's expenses.
• Split by ownership. The non-Saudi, non-GCC share for income tax; the Saudi and GCC share for zakat.
• Same base effect, different rates. Both bases fall by the full expense; income tax saves 20% of it, zakat 2.5%.
• Hijri or Gregorian. 2.5% for a full Hijri zakat year; adjusted by actual days otherwise.
• A loss year saves no income tax now. The extra expense enlarges the loss carried forward, which later offsets at most 25% of each year's taxable profit; zakat still falls in a loss year, because the base comes from equity, not profit.

Test yourself

Question 1. A company is 70% owned by Saudi partners and 30% by a non-GCC partner. The new tariff raises its yearly electricity expense by 50,000 riyals, and the expense is deductible. By how much does its income tax fall?

• A. 10,000 riyals
• B. 3,000 riyals
• C. 7,000 riyals
• D. It does not fall

Answer: B. 50,000 × 30% × 20% = 3,000 riyals. A taxes the whole increase, C uses the Saudi share, which pays zakat, not income tax, and D misses that the expense lowers taxable profit.

Question 2. A wholly Saudi-owned company has a Gregorian zakat year, and its base lies between the regulation's minimum and maximum. Its electricity expense rises by 70,800 riyals. By how much does its zakat fall?

• A. 1,770 riyals
• B. 1,825 riyals
• C. 14,160 riyals
• D. It does not fall

Answer: B. The base falls by 70,800, and the Gregorian rate is 2.5% ÷ 354 × 365, so zakat falls by 70,800 × 2.5% ÷ 354 × 365 = 1,825 riyals. A uses 2.5% without adjusting for days, C applies the income tax rate, and D misses that the expense lowers profit and so the base.

Where to practise this

Prepito's SOCPA Zakat and Tax course practises each step of this example in its own bank: Income Tax (Tax System on Profits) for deductions and the foreign share, and Implementing Regulations for Zakat Collection for the base, its limits and the rate, with a written explanation for every answer. You can try free sample questions from the course first, and the whole paper is mapped in the SOCPA Zakat and Tax study guide.

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Sources: Saudi Press Agency, Saudi Energy announces the electricity service tariff adjustment (25 October 2026); Saudi Energy, consumption and fixed tariff from 1 January 2027, consumption tariff until 31 December 2026 and tariff questions; Saudi Electricity Regulatory Authority, consumption tariff and fixed tariff; Income Tax Law and its Implementing Regulations; Implementing Regulations for Zakat Collection, 1445H, as amended; ZATCA, Guideline on Input Tax Deduction under VAT Provisions; SOCPA Fellowship examination topics. A study guide, not tax advice: each company's position depends on its full accounts, tariffs are set by the regulator and can change, and the Arabic texts of the zakat and tax laws and regulations govern.