VAT relief seeks to make VAT consumer-friendly in Oman

With the lowest standard rate of VAT at 5 per cent, as compared to anywhere in the world and a broad list of reliefs – the proposed VAT system in Oman would appear to be, comparatively, consumer-friendly. Whilst the introduction of VAT in Oman may come with an inflationary effect it is not expected to be significant.

The reliefs defined in the newly issued VAT law focuses heavily on alleviating the burden of tax on goods and services which are essential to everyday life such as rental of residential units, basic food, healthcare, and education. Certain limited reliefs have also been extended to sectors that significantly contribute to the national Gross Domestic Product such as Oil and Gas as well as Financial Services.

The Oman VAT law includes two types of relief, a zero rate, and an exemption, which both result in no VAT being directly charged to the customer. However, the practical application of these reliefs is very different as explained below:

• The zero-rate relief takes its literal meaning such that VAT will be charged at 0 per cent. Examples include, but are not limited to, the sale of basic food items, medical supplies, certain investment grade metals, international transport, certain hydrocarbon products and exports
• In contrast the VAT exemption applies to different a range of supplies including certain financial services, healthcare, education, undeveloped land, residential rents, resale of resident property and local passenger transport.

Except for international transport, most of those items which benefit from the zero-rate are goods. Owing to the way the VAT system works the vendor, who will incur VAT on their purchases, will be able to recover the VAT they have incurred in the course of making these zero-rated sales. This means that VAT should not be a cost to either the vendor or the customer.

The key difference between the exemption and the zero-rate supply is that when a vendor makes an exempt supply, they are not entitled to recover any VAT incurred on the purchase made in the course of providing that exempt supply. As such this could result in a cost escalation for the vendor which may have a knock-on effect to the customer by way of a price rise.

Of those items listed within the exemption – financial services are a particularly interesting example with many countries opting to apply an exemption owing to the difficulty in defining the value added on financial products. In Oman, the exemption on financial services will apply to products ranging from interest on loans to life insurance however products which charge a fixed fee, for example FX commission, shall be taxable at the standard rate.

Aside from the zero-rate and the exemption, VAT shall not be applied on salaries and certain charitable donations. Whilst these activities are not specifically relieved, they fall outside the range of activities on which VAT is considered.

As a final note, it is important to highlight that the VAT reliefs discussed herein are not exhaustive and may change overtime. Stay tuned to this space for more articles and insights on VAT from EY Oman.

[The writer is Senior Manager – Indirect Tax at EY Oman]