White Land Tax: Evidence in the Kingdom of Saudi Arabia

Nadisah ZAKARIA1, Zaiton ALI2 and Mohd Zamri AWANG3

Saudi Arabia. Image provided by European Space Agency

Following Sharia Law, the white land tax of 2.5 percent has been introduced and targeted to undeveloped land in the urban areas in the Kingdom of Saudi Arabia. This tax acts as a penalty to the vacant land. This study is motivated to provide some evidence by discovering how the market reacts to the announcement of white land tax during the short-run period. Using the market-adjusted return model, evidence indicates that real estate development and construction companies significantly underperformed both equal-weighted and valueweighted market benchmarks during few days surrounding the announcement date. The results imply that investors show less favourable reactions to such event. The results also imply that size of companies does have effects as different results were produced when this study switches from equal-weighted to value weighting.

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Keywords: Announcement effects, white land tax, Kingdom of Saudi Arabia

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