On Monday, Sultan of Oman Haitham bin Tariq issued a royal decree to issue a 5% value-added tax law on goods and services, making the Sultanate the fourth Gulf country to apply the tax since its introduction in January 2018.
According to the Oman News Agency, this tax will be imposed on most goods and services – with specific exceptions in the law and regulation – at every point of sale, that is, at every stage of the supply chain, and it will also be imposed on the import of goods into the Sultanate, with specific exceptions in the law and regulation as well.
The decree stipulates that “the head of the tax authority shall issue the executive regulations of the attached law, within a period not exceeding 6 months from the date of its implementation, and he shall also issue the necessary decisions to implement its provisions.”
The government said on Twitter that the value-added tax will take effect in April of next year, and will exclude from the tax all basic food commodities, health care, education, financial services, home rents, supplies of crude oil, petroleum products, and natural gas.
The Omani government added that the implementation of the value-added tax came to ensure the financial sustainability of the Sultanate, enhance its competitiveness, reaffirm its commitment to international and regional agreements, and improve the business environment.
The value-added tax is a tax that is paid by the consumer, and is imposed on the difference between the purchase price from the factory and the selling price to the consumer.
According to the Oman News Agency, the value-added tax is expected to provide an additional resource for the state’s public finances to ensure the continuity of the quality of public services, and it will also support the achievement of the Sultanate’s goals to reduce dependence on oil and other hydrocarbon products as main sources of its revenue.
The UAE and Saudi Arabia began implementing the 5% added tax as of early 2018, after the Gulf Cooperation Council adopted a unified value-added tax agreement in 2016, and Riyadh increased this tax by 3 times this year.
Bahrain began implementing the tax in early 2019, while Qatar and Kuwait have yet to postpone imposing it.
The budgets of the Gulf states were affected by the significant drop in oil prices in 2014, which prompted them to adopt austerity plans that include financial reforms in order to diversify revenues, and not to rely on oil as the only source of income.
The repercussions of Corona came to add more financial pressure, which may accelerate the approval of new reform plans.
“The implementation of the value-added tax is another important and positive sign for the market that Oman is looking forward to moving forward with a much-needed fiscal reform program after announcing spending cuts this year,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
In the face of an economic contraction of 2.8% this year, and a ballooning deficit in the government budget of 16.9% of GDP – according to the International Monetary Fund – the Sultanate has reduced public spending to contain the financial leakage resulting from low oil prices, and the economic decline due to the general isolation measures related to the Corona virus .