30 March, 2016

Oman may be first to launch VAT in the region

Oman is expected to become the first country in the Gulf Cooperation Council to implement the long-planned value added tax (VAT).

30 March 2016
As part of measures to shore up revenues, Oman is expected to become the first country in the Gulf Cooperation Council to implement the long-planned value added tax (VAT). "Final touches are being made to the draft law relating to VAT. It is only a matter of timing", said an official familiar with the matter. Although he did not specify rates of the tax, he indicated that it might even go up to five per cent on certain categories. "There will be no exemptions, and all consumers will pay the VAT upon its implementation," he said, adding, "key sectors, such as health, education and social services may not be included in the new tax net".

The planned tax on consumer goods and services will be the first such levy in GCC states.  The oil-producing GCC states have traditionally been tax-free havens although a corporate tax of 15 per cent is levied in Oman. "The decision is to exempt some foods -- approximately 94 items. We have also agreed to apply zero rates on healthcare and education sectors", he said. The official who did not want to be named said that with the introduction of VAT, the government will be able to add roughly up to RO 300 million every year the state coffer." He also ruled out any plan to introduce income tax in the country.

Last month, Darwish bin Ismail bin Ali al Balushi, Minister Responsible for Financial Affairs was quoted as saying that GCC countries have reached an initial agreement to start applying VAT at five per cent by 2018. The minister said that some amendments to the tax could be made till 2018, yet generally the planned rate will be unchanged. At the same time, business community feels that VAT, although conceptually simple, in practice it is very complex. "VAT will certainly increase the cost of doing business and compliance for companies. The incremental costs and requirements associated with VAT will need to be carefully budgeted in business models to offset any financial pains", said Srinivas Rao, chief financial officer of a leading multi-national company. The Sultanate has long been considered a tax-free country for investors.

Oman's low tax environment and ease of doing business have attracted a number of large multinationals to branch out into the country, he said. "It is a major business issue. It may have a big impact on short to medium term business plans. They now need to consider pricing and working capital issues", said Kamal Jha, finance manager of a company importing oilfield equipment. But with a sustained slide in oil prices, officials say there is no other alternative but only tax reforms. "VAT should not be seen in isolation. With the new focus on government revenues, tax is becoming a for the same", said an official at a local bank. The International Monetary Fund expects GCC countries to post average fiscal deficits of around 13 per cent in 2016 for an estimated $275 billion shortfall. According to global economy watchdog, introducing VAT across the Gulf could raise up to 2 per cent of GDP in revenue.

© Oman Daily Observer 2016

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