Why Omani companies ought to be cautious forward of April VAT implementation
The introduction of VAT in Oman might influence companies already struggling to take care of the dual financial shocks of a worldwide pandemic and risky oil costs, based on Jeanine Daou, PwC Center East’s oblique tax chief.
Money-strapped Oman has revealed plans to introduce a 5 % value-added tax in April subsequent yr, following the lead of Gulf neighbours.
Introduction of VAT early in 2021 could possibly be coming at the absolute best time as Sultanate battles financial impacts of Covid-19 and low oil costs
Daou advised Arabian Enterprise the brunt of the tax might be borne by customers, who might discover sure merchandise merely exterior of their budgets.
She mentioned: “It is doable that the addition of VAT on sure elastic items and companies might end in decreased shopper demand, which in flip might influence some companies.”
Important meals objects, medical care, training and monetary companies might be exempt from the deliberate levy, based on a royal decree detailing the tax on Monday.
Daou added: “These items and companies might be VAT exempt, zero-rated or exterior the scope of VAT, and are included to make sure that fundamental commodities usually are not taxed extensively.”
Oman, the most important oil exporter exterior OPEC, was among the many extra susceptible economies within the six-nation Gulf Cooperation
Council even earlier than it was lashed by falling crude costs and the coronavirus pandemic.
The United Arab Emirates and Saudi Arabia, additionally hard-hit by the drop in oil costs, imposed a 5 % VAT in 2018. Saudi Arabia tripled its tax this yr.
Daou believed the upcoming introduction of VAT within the sultanate will assist to regular the monetary ship within the nation.
“The introduction of a secure non-hydrocarbon income supply will contribute to bridging Oman’s deficit and can doubtless be seen as a optimistic step by exterior our bodies and credit standing companies,” she mentioned.
Oman’s sovereign score was reduce for a second time this yr on the finish of June by Moody’s Traders Service, which forecast a decrease crude worth surroundings will doubtless slash the Gulf nation’s oil income.
The score firm downgraded the sovereign a notch decrease to Ba3 – three ranges into its non-investment grade scale, and adjusted its outlook to unfavourable. In March, Moody’s put Oman on overview for the downgrade, saying the nation’s low fiscal energy will doubtless place strain on its funds.
Because the begin of the yr, Oman’s Ministry of Finance has issued a number of circulars and numerous directives to authorities models to curtail spending – in April, the MoF introduced a reduce of OR500 million ($1.3bn) within the state finances.
Oman, dominated by Haitham bin Tariq additionally reduce the salaries of latest authorities staff.
Oman – along with the opposite 5 states of the Gulf – agreed to introduce VAT in 2018, though it later delayed its implementation to 2019. That was delayed additional to 2021 amid sluggish financial efficiency 12 months in the past.
Daou remained cautious about any strategies Oman might shortly observe the instance of Saudi Arabia in mountaineering up its tax degree.
She mentioned: “The GCC VAT Framework Settlement, which units out the broad ideas of VAT for the GCC member states, stipulates that member states, together with Oman, should implement an preliminary customary VAT charge of 5 %.
“By international requirements, 5 % is without doubt one of the lowest VAT charges applied in different nations and we now have seen KSA just lately growing the speed to fifteen % efficient 1 July 2020. While a rise in charge clearly goals at producing extra income, nations might want to assess the timing within the mild of its potential influence on the financial system.”