Oman plans to introduce VAT in April as it battles budget deficit

Oman plans to introduce VAT in April as it battles budget deficit

Oman, the biggest oil exporter outside OPEC, was among the more vulnerable economies in the six-nation Gulf Cooperation Council even before it was lashed by falling crude prices and the coronavirus pandemic.

Cash-strapped Oman is planning to introduce a 5 percent value-added tax in April, following the lead of Gulf neighbours.

Essential food items, medical care, education and financial services will be exempt from the planned levy, according to a royal decree detailing the tax on Monday.

Oman, the biggest oil exporter outside OPEC, was among the more vulnerable economies in the six-nation Gulf Cooperation Council even before it was lashed by falling crude prices and the coronavirus pandemic.

Its budget deficit as a share of gross domestic product is anticipated to be among the highest in the region, according to the International Monetary Fund.

The United Arab Emirates and Saudi Arabia, also clobbered by the drop in oil prices, imposed a 5 percent VAT in 2018. Saudi Arabia tripled its tax this year.

Oman’s sovereign rating was cut for a second time this year at the end of June by Moody’s Investors Service, which forecast a lower crude price environment will likely slash the Gulf nation’s oil revenue.

The rating company downgraded the sovereign a notch lower to Ba3 - three levels into its non-investment grade scale, and changed its outlook to negative. In March, Moody’s put Oman on review for the downgrade, saying the country’s low fiscal strength will likely place pressure on its finances.

Since the start of the year, Oman’s Ministry of Finance has issued several circulars and various directives to government units to curtail spending – in April, the MoF announced a cut of OR500 million ($1.3bn) in the state budget.

Oman, ruled by Haitham bin Tariq (pictured above) also cut the salaries of new government employees.

Oman – together with the other five states of the Gulf – agreed to introduce VAT in 2018, although it later delayed its implementation to 2019. That was delayed further to 2021 amid sluggish economic performance 12 months ago.

Historically, about 80 percent of Oman’s revenue has been generated by the exports of oil and its derivatives. Economic diversification and developing non-oil based revenue streams in order to reduce reliance on hydrocarbons has been on Oman’s agenda for the past period.

Measures such as the Tanfeedh programme and Oman Vision 2040 have already been rolled out to promote non-oil based sectors such as fisheries and aquaculture, transport and logistics, manufacturing, mining and tourism.


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