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| 03 January, 2018

Oman's revenue gets $260mln boost from amended income tax law

Oman Income Tax Law raises the tax rate from 12 to 15%.

Image used for illustrative purpose.

Image used for illustrative purpose.

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Amendments to the Oman Income Tax Law, key provisions of which have come into force this year, will generate an additional RO 100 million in revenues to the government in 2018, according to a well-known tax expert.

Alkesh Joshi, Partner (Business Tax Advisory Services) at multinational professional services firm EY Oman, said the revenue spike will help offset reductions in customs duty and other non-oil earnings recorded in the 2018 State Budget unveiled here on Monday.

The amended tax code, promulgated via Royal Decree 9 / 2017, effectively brings all of the estimated 120,000 companies registered with the Ministry of Commerce and Industry within the purview of Oman’s tax system. It raises the tax rate from 12 to 15 per cent while reducing the tax-free threshold from RO 30,000 to zero. Furthermore, the scope of withholding tax has been extended to cover seven categories of payments made by local companies to foreign companies.

Total revenues from taxes, customs duties and other fees are projected to dip to RO 1,413 million in 2018, marginally down from RO 1,423 million in 2017. A sizable drop in customs duty is primarily to blame, although the fall is substantially mitigated by an increase in corporate tax earnings, the Muscat-based tax professional noted.

“Tax reforms introduced last year via Royal Decree have helped in bolstering non-oil revenue, which has more than compensated for the drop in customs duty,” said Joshi.

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“The fall in customs duty has been anticipated because of the In-Country Value (ICV) focus of the government, which is part of a concerted effort to reduce domestic dependence on imports. This is in line with a broader effort to stimulate the growth of the manufacturing sector — a move that will also contribute to the national goal of creating 25,000 jobs for Omanis in the private sector.”

The slump in customs duty accruals, he noted, is evidence of an energetic focus by the government to spur manufacturing activities with a goal to reduce dependence on imports.

Significantly, the projected jump in corporate tax accruals to the government will go a long way in helping the government sustain funding for its flagship social programmes, encompassing primarily education and healthcare, according to the tax expert.

“What is noteworthy is that taxpayers are now able to participate in nation-building through their contributions towards the government’s social spending. Thus, the increase in corporate and other taxes is only helping the government fund these important programmes.”

Speaking to the Observer, the EY executive also credited the government’s “prudent policies” in reducing the projected deficit in the 2018 State Budget to RO 3 billion.

“The actual deficit for 2017 is RO 3.5 billion, which is far lower than the 2015 deficit of RO 5.3 billion. This reduction is the result of prudent government policies which helped check expenditure. A further reduction in the deficit to RO 2.5 billion in 2016 is primarily because of the improved realisation in oil revenues,” he explained.

In achieving a significant cutback in the deficit to RO 3 billion in 2018, the government has effectively also kept the debt-to-GDP ratio in check, said Alkesh.

“If you compare current oil prices, expected to average $62 per barrel for the first quarter of 2018, this average is well above the assumed price of $50 per barrel on which this year’s budget is based.

This $12 per barrel difference will only help to drive up the GDP while automatically bringing down the debt-to-GDP ratio for the year. Thus, the concerted effort of the government to keep the deficit in check will also lower the debt-to-GDP ratio,” he added.

© Oman Daily Observer 2018