Oman poised to introduce 5 percent value added tax

Oman is planning to roll out a 5% VAT in six month’s time to help shore up state finances ravaged by COVID-19 and low oil prices.

Oman's planned VAT will apply to most goods and services according to state television [File: Fahad Shadeed]

Oman’s ruler has issued a decree to start levying a 5 percent value-added tax in six months’ time, state-run Oman TV said on Monday, as the Gulf oil producer seeks to boost revenues battered by low oil prices and the coronavirus pandemic.

The tax will be on most goods and services, though with some exceptions, according to a video presentation shown on Oman TV.

All six Gulf Arab states agreed to introduce 5 percent VAT in 2018 after a slump in oil prices hit their revenues. Saudi Arabia, the United Arab Emirates and Bahrain have already introduced the tax, with Riyadh tripling it this year.

Oman – whose financial position is among the weakest in the region – and also Kuwait and Qatar have not yet introduced the tax.

“The introduction of VAT is another important and positive sign to the market that Oman is looking to progress with a much needed fiscal reform programme after announcing spending cuts this year,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

Facing a 2.8 percent economic contraction this year and a yawning government deficit of 16.9 percent of gross domestic product (GDP), according to the International Monetary Fund, Oman has cut public spending to contain the financial leakage caused by lower oil prices and the downturn caused by coronavirus lockdowns.

Major cuts in the first half of the year included areas such as defence and security, as well as investment expenditure, data released by the national statistics agency showed last month.

Despite the cuts, Oman posted a deficit of 826.5 million rials ($2.15bn) in the first six months of the year, a 25.1 percent deficit increase on a yearly basis, the figures showed.

“Further fiscal adjustment – both revenue and expenditure – will be required from Oman going forward, especially as the funding requirement will remain high given the outlook for continuing government deficits and the rise in maturing debt from 2021. Revenue from VAT will likely be less than 2 percent of GDP once consumption stabilises,” said Malik.

The VAT announcement comes ahead of an expected issuance of international bonds, Oman’s first this year.

Source: Reuters