Decreased revenue flows from oil and gas exports are prompting GCC states to look to diversify their economies and income streams and to consider other forms of taxation with increasing urgency. The Oman tax authorities are focusing on increasing their tax revenues, and may be seen to be applying the current tax legislation more rigorously than in previous years. There has been much speculation regarding the new taxes that the Omani authorities may seek to introduce in the future, such as a tax on personal income, a remittance tax for individuals wishing to send money overseas, and the introduction of value-added tax (VAT).
VAT & GST
Consumption taxes, such as VAT and general sales tax (GST) are increasing in prominence and now exist in nearly 150 countries. VAT is an indirect tax on consumption that is levied at each stage in the chain of production and distribution, as well as upon import.
VAT is generally charged when a “taxable person” makes a “taxable supply”. Usually businesses with a turnover above a certain threshold are deemed to be taxable persons and are required to register for VAT with the local authorities. As part of the scheme, VAT is collected by businesses on behalf of the local tax authorities and, broadly, VAT paid on purchases and expenses is credited against VAT charged on supplies made. Businesses are required to submit VAT returns and pay over any VAT due to the local authorities periodically.
Tax Across The Sectors
Some sectors may qualify for a different rate of VAT (including 0% in some cases) to be levied on their taxable supplies. The supply of certain categories of goods and services may also be exempt from VAT. Typically, these may include the provision of financial, insurance, education and health care services. Businesses providing exempt services may not be able to deduct VAT and consequently suffer VAT costs on their expenses and overheads. In these cases, VAT may become a non-recoverable cost.
GCC Roll Out
The GCC states, including Oman, have studied the potential implementation of a VAT system for some time, and agreed upon a draft VAT framework in early 2015. There have been no official announcements detailing the timetable for VAT implementation across the GCC region; following such an announcement, Oman would need to introduce its own domestic law and regulations, in line with the wider GCC framework, in order to implement a VAT system within the sultanate. Not all GCC countries may choose to implement a VAT system at the same time, which may result in a stepped introduction of VAT across the region.
While the Oman tax authorities have not announced any details about a VAT system, the introduction of any such system may have far-reaching effects for businesses and individuals across Oman. Businesses that meet certain criteria will be required to register with the tax authorities and bear the administrative burden of maintaining records and completing VAT returns. Employees will need to be trained on how VAT affects their business, and invoicing and payment systems will have to be updated. Import and export businesses will also be required to correctly account for VAT.
Consumers may ultimately see their cost of living rise within the sultanate, particularly if businesses choose to increase their prices to maintain their profit margins. However, some types of basic services and goods are traditionally exempted from VAT by governments in order to minimise the cost of living. Whereas many countries have a VAT standard rate as high as 20%, it is predicted that a much lower rate of 3-5% will be introduced in the GCC.
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