DUBAI- Oman plans to widen exemptions from a value-added tax (VAT) it will introduce this month and increase subsidies to mitigate the impact on citizens from the planned VAT, which is being introduced to help the Gulf state bolster its debt-burdened coffers.

Oman will raise the number of food commodities exempted from the VAT to 488 from 93 and will raise the level of subsidies on fuel, electricity and water consumption for families receiving government financial support, the state-run Oman News Agency reported on Thursday.

The measures, part of a package to assist families during the pandemic, also exempts low-income citizens from reimbursing housing loans given by the ministry of housing, it said.

Oman will start levying a 5% VAT on April 16 to ensure the sultanate's financial sustainability after it accumulated huge amounts of debt over the past few years to compensate for lower oil income.

It will join Gulf neighbours Saudi Arabia, United Arab Emirates and Bahrain, which have implemented VATs in recent years to diversify state revenue.

The tax is one of a series of steps taken by Oman's ruler, Sultan Haitham, to improve fiscal efficiency after sensitive reforms lagged for years under his predecessor, Sultan Qaboos, who died in January last year after half a century in power.

"Annual revenue from the new tax is expected to reach 400 million Omani riyals (approximately $1.04 billion). Additional revenue streams are sorely needed to help finance the budget," said Robert Mogielnicki, resident scholar at the Arab Gulf States Institute in Washington.

Oman has said it expects a budget deficit of 2.24 billion rials ($5.82 billion) this year.

In a first among oil-rich Gulf states, the sultanate is also planning to introduce an income tax on high earners starting next year, as part of plans to bring down its deficit. 

($1 = 0.3850 Omani rials)

(Reporting by Maher Chmaytelli and Davide Barbuscia; editing by Jason Neely and Steve Orlofsky) ((;))