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Oman imposes 5% VAT from April 16. Here’s what it means for revenues

The implementation of VAT comes in line with the GCC framework that was agreed upon between the six-nation bloc

It is estimated that VAT will contribute 1.5% towards the country's gross domestic product (GDP) Oman will raise the number of food commodities exempted from VAT to 488 from 93 In the GCC, the so-called “sin tax” excise duties are applied everywhere except Kuwait

Oman will start implementing a 5% VAT from April 16, Oman News Agency reported recently.

The implementation of VAT comes in line with the GCC framework that was agreed upon between the six-nation bloc. The UAE and Saudi Arabia levied a 5% VAT on January 1, 2018, followed by Bahrain. Saudi later in 2020 raised its VAT to 15% amidst a shortfall in revenues due to a plunge in oil prices.

The sultanate is also planning to introduce an income tax on high earners starting next year, as part of plans to bring down its deficit. 

Read: GCC VAT revenues, VAT dates for Kuwait, Qatar, and Oman, plus COVID-19 VAT impact

Read: Potential Saudi property owners get a tax break: 15% VAT not kind to economy

Revenues expected

It is estimated that VAT will contribute 1.5% towards the country’s gross domestic product (GDP) and raise around $1 billion per year.

A study by EY had predicted that the adoption of VAT by GCC countries would generate additional annual revenues of $25 bn.

Oman’s tax authority had opened the registration process for the companies to register in the special tax system in February last year to have the necessary time to prepare their accounting systems and other measures for tax compliance.

Exemptions

Oman plans to widen exemptions to a value-added tax (VAT) it will introduce this month and increase certain subsidies to mitigate the impact on citizens from the planned VAT.

Oman will raise the number of food commodities exempted from VAT to 488 from 93 and will raise the level of subsidies on fuel, electricity and water consumption for families receiving government financial support, the state-run Oman News Agency reported recently.

Items such as vegetables, food grains, fruits, poultry, and dairy will be subject to 0% VAT.

The essential items include garlic, potatoes (fresh and frozen), carrots, dates, avocados, mangoes, oranges, lemons, grapes, pineapple, varieties of fish, wheat, and rice.

Also on the list are mineral water, sugar, salt, meats, poultry, dairy products, fresh eggs, vegetables, fruits, coffee beans, tea, cardamom, grains, olive oil, baby food products, and bread. Other items included on the list are medicines and medical equipment and life-saving drugs.  

The amount of subsidized fuel that people can buy at reduced prices has also been hiked from 200 to 400 liters per month.

GCC taxes 

Gulf governments are going from no tax to low tax and offering incentives to retain talent, 

“With careful design, GCC tax policies can be used to encourage positive outcomes and can potentially provide a win for revenue generation, and, importantly, a win for competitiveness,” Mark Schofield, PwC Middle East Tax and Legal Services Leader wrote as part of  PwC’s Middle East Economy Watch findings.

“The tripling of VAT in Saudi Arabia in July 2020 and the launch of VAT in Oman in April should see the take double again to about $47 bn in 2021, nearly half of all GCC taxation,” PWC’s statement said.

In the GCC, the so-called “sin tax” excise duties are applied everywhere except Kuwait. In 2019, VAT and excise tax accounted for more than a quarter of total tax revenues at $24 bn. 

In Saudi, expat levies aimed at boost Saudisation in the private sector and phased in since 2017, have raised around $15 bn in 2019.

The GCC is still a “very low-tax environment by international standards” wrote Schofield. “OECD taxes, by comparison, average 34% of GDP.”  

Freshly, the UAE’s Federal Tax Authority has released a bulletin highlighting the VAT rights and obligations of performers and those who earn income from online platforms.

These persons must charge and remit VAT for services provided that are subject to VAT at the headline rate, it said.

The bulletin highlights that any online promotional activities that an influencer performs on behalf of other businesses should be subject to VAT, including promoting a product, promoting a business, and any physical appearances, marketing, and advertising-related activities. 

They must register for VAT when their taxable suppliers in the past 12 months exceeded 375,000 Dirhams ($101,000), or their suppliers are expected to exceed that threshold in the next 30 days. 

It highlights that non-resident artists and influencers are also required to register for VAT where they make any taxable supplies with the place of supply in the UAE.