MUSCAT -- Oman is studying the viability of implementing a value-added tax (VAT) in tandem with a GCCGCC plan to jointly introduce a new tax levy to compensate for revenues lost as a result of their customs union and the free trade agreements under discussion with a number of countries and economic blocs. Ahmed bin Abdulnabi Macki, Minister of National Economy, said the issue of adopting VAT was presently "under study", but he categorically ruled out any move to introduce new taxes at least over the foreseeable future.

Macki's comments came during a press conference that followed his presentation of the 2009 State General Budget at the Ministry of Finance yesterday. Asked if there were any plans to introduce personal income tax as a means to augment government revenues in the face of slumping oil earnings, the minister declared: "There will be no new taxes." He noted however that the VAT study stemmed from a joint decision by the Gulf Cooperation Council (GCC)Gulf Cooperation Council (GCC) members to consider the implementation of VAT as a new revenue source to offset earnings lost as a result of the abolition of import tariffs following the establishment of a GCCGCC customs union removing the barriers to free trade among the member states.

A flat rate of duty of five per cent is now imposed on most imported goods, apart from listed exemptions at the first point of entry into the Gulf. Planned FTAs between the GCCGCC and the European Union, India and other countries could further erode customs duty as a source of revenue for Gulf governments, prompting the GCCGCC to consider a new form of indirect taxation, notably VAT. "We are (approaching) the issue of VAT collectively, rather than individually," Macki commented. Following his budget presentation, Macki fielded questions from journalists ranging from the impacts of the global financial meltdown on Oman's economy, to inflation, and plans for a railway network in the Sultanate.

"We are proceeding with the plan to build a railway network in Oman, with a link between Sohar and Barka in the first stage. A consultant is currently working on this aspect," Macki said, adding that the initiative is being pursued with the ultimate goal of linking the Oman rail system with a Gulf-wide network. "All the GCCGCC countries are in favour of a railway network," he noted. Oman's Supreme Committee for Town Planning is overseeing the conception and design of the Batinah Railway project on behalf of the Ministry of National EconomyMinistry of National Economy. Envisaged is an arterial railway that will run within the same corridor through which the proposed Batinah Expressway is planned.

The roughly 260-km long corridor, running parallel to the existing Batinah Highway, starts from Halban Road near Naseem roundabout and travels north all the way to Khatmat Malaha on the border with the United Arab Emirates (UAE). Asked about the status of plans to develop an ambitious integrated refinery and petrochemicals complex at Duqm in light of the global financial crisis, Macki stated: "The project is still under study at present. As such, it is neither been postponed or shelved." The government has been weighing plans for a world-scale refinery with a processing capacity of around 300,000-400,000 barrels per day (bpd) of heavy crude oil, along with a polypropylene plant and other downstream petrochemical units.

At the briefing, Macki also explained the wisdom behind the government's decision to finally set $45 as the benchmark price per barrel of oil in drawing up its 2009 state budget, in contrast to the earlier assumed price of $55 per barrel. "When we chose $55 as the benchmark, international oil prices were $86 per barrel. But within three weeks, the price dropped sharply to around $45, and in consultation with the (Financial and Energy Resources Council), we agreed on this new price." The deficit, he said, would be covered through withdrawals from the emergency reserve fund. At the same time, Macki warned that any further slump in oil prices below the revised benchmark would result in cost-cutting measures.

"If the price falls below $45 this year, then we will have to take measures to reduce expenditure, without touching (staff) salaries. We will need to rearrange our priorities with regard to developmental projects. This will not entail their cancellation, rather they will spread out. But we anticipate oil prices to stabilise during mid-2009," he said, while mooting the $60-65 range as a "comfortable" price band. Macki also praised the efforts of the Ministry of TourismMinistry of Tourism in raising the contribution of the tourism sector to the GDP to nearly 3 per cent from around 1 per cent a year ago. He credited this growth to the ministry's "accelerated campaign" in attracting tourists to the Sultanate.

By Conrad Prabhu

© Oman Daily Observer 2009

 

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