The low anticipated tax rates in Oman—likely ranging from 5 to 9 percent—will help allay worries among foreign investors and expats
Oman is set to become the first country in the Gulf to impose a personal income tax as it looks to diversify its sources of income beyond oil. The plan also falls in alignment with its Vision 2040 strategy. Last week, the Omani parliament’s lower chamber, the Majlis al-Shura, approved a draft law and sent it to the upper house, the State Council, for approval of the next step in the legislative process.
Declared during the Shura’s twelfth regular session, the decision represents a change in a region that has historically depended on a policy of non-income taxation to draw foreign investors and stimulate economic growth.
Despite current denials from neighboring states, Bahrain’s Sico Investment Bank stated in a research note that Oman’s decision could eventually lead to similar measures across the Gulf.
Although the long-awaited change has been postponed several times, Oxford Economics Middle East chief economist Scott Livermore stated that it now appears likely.
“The bill expands the tax base and strengthens the sustainability of public finances, building on the progress made in the last few years,” he informed AGBI.
“While the levy isn’t currently planned elsewhere in the GCC, it will be challenging to accomplish that without raising taxes on citizens, either directly or indirectly, as governments seek to diversify their sources of income.”
While agreeing with the attitude, Shiraz Khan, a partner at the legal firm Al Tamimi, emphasized the distinctive economic circumstances of each GCC state.
“Although the introduction of personal income tax in Oman would represent a first for the GCC, there isn’t any indication at this time that other states would follow suit,” the speaker stated.
Every GCC state has unique needs and economic conditions. Oman’s choice would be in line with its unique national economic needs.
According to Khan, the low anticipated tax rates in Oman—likely ranging from 5 to 9 percent—will help allay worries among foreign investors and expats.
While taxing personal income may have an impact on Oman’s appeal to foreigners, Syed Naqi, a senior director at consultancy company Alvarez & Marsal, noted that this is just one aspect among several.
According to him, the tax might increase trust and transparency when paired with more extensive economic reforms, which would increase Oman’s competitiveness in the region. Regional replication of Oman’s decision is possible, according to Naqi. He added, “It also gives other GCC countries a model, encouraging them to consider similar tax reforms.”
Although Naqi stated: “It is not unreasonable to assume that a form of personal income tax may be introduced by them at some point in the future, given the introduction of corporate tax and VAT in some of the GCC countries,” Saudi Arabia and the United Arab Emirates have both stated that they do not expect to enact such a levy anytime soon.
Gulf governments have used a number of tax policies to help finance development and lessen their reliance on money from oil and gas.
The United Arab Emirates (UAE), a haven for the world’s ultra-wealthy, imposed a federal corporate tax on business profits for the first time on June 1st of last year. To keep business appeal, the rate was kept low at 9 percent.
In line with global initiatives to prevent tax evasion, the finance ministry announced the introduction of corporate taxation.
The corporate income tax rate in Qatar is 10%, while it is 20% in Saudi Arabia.
VAT has been implemented in the UAE, Saudi Arabia, Oman, and Bahrain, with a common rate of 5%. To compensate for revenue losses during the Covid-19 outbreak, the Saudi government increased its charge to 15 percent in 2020. Qatar and Kuwait have not yet done so.
According to Naqi of Alvarez & Marsal, Oman should have a steady and varied source of income following the implementation of the personal income tax.
He stated that the action is necessary to lower the fiscal deficit and support long-term economic stability, especially in light of the volatile price of oil.
Infrastructure, education, healthcare, and other essential government services are likely to receive a large portion of personal tax income, according to Fazeela Gopalani, president of the Association of Chartered Certified Accountants’ Middle East and Africa region.
“To ensure balanced and sustainable growth, Oman will likely allocate tax revenue to economic areas that require additional funding,” the spokesperson said.