The Tax Authority has introduced a voluntary income tax compliance system for small businesses and they should use its benefits, says Mohammed Balarab Al Nbhani, the D.G. of the First Directorate for Taxation at the Tax Authority.

The Tax Authority seeks, through its approved plans and programmes to increase tax compliance. Tax compliance means the compliance of taxable persons with the requirements of the applicable tax laws in the Sultanate. The Tax Authority followed the voluntary commitment approach, whereby the burdens and requirements are reduced in particular on small and micro commercial, industrial and service activities. Companies and institutions that meet the legal requirements are called ‘establishments’. These establishments, only having to fill out a simplified tax return each year, are subject to a tax rate of three per cent instead of 15 per cent. Some of these institutions are exempted if they meet more requirements. 

The Tax Authority is currently conducting various awareness campaigns to spread tax awareness, especially for young taxpayers and the public in general.

Also Read: How Is VAT Expected To Affect People And Businesses In Oman?

Legal and economic concepts of taxes and their types

In general, tax revenue is one of the important sources in the general budget of any country with diverse sources of income. It also constitutes in many economically developed countries the main resource for public spending on areas such as education, health, social services, security and others.

When the state levies taxes, it exercises sovereign jurisdiction. Since these taxes represent a burden on the income or property of persons, the imposition, exemption, modification or abolition of taxes shall only be made by a Law.

The last paragraph of Article (14) “Economic Principles” of the Basic Statute of the State issued by Royal Decree No. 6/2021 states that “Taxes and other public costs are based on social justice. Public taxes may not be levied, amended, or abolished except by a law. No one is exempted from paying taxes except those specified by the law.

In line with the principle of “no tax and no exemption without a Law”, a number of tax laws have been issued. The Tax Authority oversees the implementation of both the Income Tax law and the Excise Tax law.

In order to achieve the economic and social objectives of imposing taxes, some tax laws may include some exemptions to support some economic sectors with the aim of developing them and encouraging investments in them or easing the burden on consumers.

There are two types of taxes in Oman

Tax History in Oman

The first income tax law was introduced in Oman during the year 1971. It was followed by the issuance of the corporate income tax law in 1981 vide the Royal Decree No. 47/81. This law which replaced the income tax law of 1971 included fourteen chapters and four tables covering details of taxable incomes and exemptions and provisions on how to assess and collect tax and others. Several amendments were introduced to this Law, the latest of which was the amendment by Royal Decree No. 13/2004.

As for sole proprietorships, the Corporate Profit Tax law was issued by Royal Decree No. 77/89. The actual application started during tax year 1994. The application of the law was initially limited to commercial and industrial establishments.

In order to keep pace with the financial and economic developments that Oman witnessed, especially with the country’s entry into multiple trade agreements such as free trade agreements (FTA) and its accession to the World Trade Organisation and in a bid to eliminate ambiguity caused by the existence of several tax laws, the new Income Tax Law was issued by Royal Decree No. 28/2009. The application of the provisions of the law became mandatory as of January 1, 2010 for all commercial, industrial or professional activities in the Sultanate of Oman.

The law applies to individual institutions and companies that are established in accordance with Omani legislation. The application also applies to branches of foreign companies that operate in Oman and foreign companies that do not have a permanent facility in Oman and receive amounts from companies and bodies located in Oman. Amendments have been made to the Income Tax Law promulgated by Royal Decree No. 28/2009 pursuant to Royal Decree No. 9/2017, with the aim of addressing the challenges that accompanied economic growth and movement.

The fluctuation of oil prices during the last ten years has had tangible effects on the levels of economic activity and general financial conditions in the Sultanate and the GCC states. This prompted the GCC countries to coordinate in order to search for ways to increase non-oil revenues to transform the economies of these countries from oil revenue-dependent economies to productive and diversified economies.

Based on the decision of the GCC Supreme Council at its thirty-sixth session (Riyadh, December 9-10, 2015) the Financial and Economic Cooperation Committee has been mandated with completing the necessary requirements for approving and signing the two unified agreements for the GCC excise tax and value-added tax. To this end, the following royal decrees have been issued:

• Royal Decree No. 23/2019 regarding the Excise Tax Law.
• Royal Decree No. 50/2021 ratifying the GCC Unified Agreement for Value Added Tax.
• Royal Decree No. 51/2021 ratifying the GCC unified agreement on Excise Tax.
• Royal Decree No. 121/2020 regarding the value-added tax (VAT) law.

Tax Authority

After restructuring the General Secretariat for taxes at the Ministry of Finance, the Tax Authority has become the agency responsible for enforcing tax laws in Oman,

Following are the key milestones for the Tax Authority 

1. Taxes were administered by the Department of Financial Affairs, Administrative Apparatus of the State when the first Income Tax Law in the Sultanate was issued in the year 1970.
2. With the promulgation of the Law of the Organisation of the Administrative Apparatus of the State, by Royal Decree No. 26/75, which set the jurisdiction and the organisational structure of the Ministry of Finance, taxes became part of the Department of Income and Investments. Following the re-organisation of the Directorate General of Finance under the Royal Decree No. 40/80 which raised the level of affiliated Departments to Public Administrations, the Tax Department came under the General Administration of Income and Investments as a Department with two sections: one for Inspection and the other for Collection.
3. This organisation continued even after the introduction of the Office of the Deputy Prime Minister for Economic and Financial Affairs in 1982, the adoption of the organisational structure of the office, issued by Royal Decree No. 27/84 and the advent of the Ministry of Finance and Economy affiliated to the office, promulgated by Royal Decree No. 64/85.
4. The year 1991 saw the appointment of the Secretary-General for Taxation, as per the Royal Decree No. 4/91, whereby the Secretariat General for Taxation became one organisational division of the Ministry of Finance and Economy, under the Office of the Deputy Prime Minister for Finance and Economic Affairs along with Financial and Economic Affairs.
5. In 1993, the Taxation department was established and its three-department-led organisational structure was approved by Ministerial Decree No. 8/93. The three departments were: the Department of Investigation and Assessment, the Department of Survey and Administrative Affairs, and the Department of Collection.
6. Following the establishment, determination of jurisdictions and approval of the organisational structure of the Ministry of Finance with the Ministerial formation in 1995 issued by Royal Decree No. 39/96, the organisational structure of the Taxation departments have been upgraded to Directorates General bearing the same names. Later on, with the promulgation of Royal Decree No. 20/2006, the DG of Survey and Administrative Affairs has been modified to be named: The Directorate General of Survey and Tax Agreements.
7. In accordance with the Royal Decree No. 66/2019 issued on 15/02/1441AH correspondence to 14/10/2019, Tax Authority has been established which has its administrative and financial autonomy and it shall be attached to the Council of Ministries. Assets, allocations and jurisdictions of the Secretariat General for Taxation at the Ministry of Finance shall transfer to the Tax Authority together with the Secretariat’s staff with the same job status and financial allocations.
8. In 2020, Royal Decree No. 42 / 2020 was promulgated issuing the Tax Authority system and approving its organisational structure. After that, Royal Decree No. 103 / 2020 was issued, to change the affiliation of the Tax Authority from the Council of Ministers to the Minister of Finance.
9. The restructuring and administrative development of the Tax Authority was an essential part of the tax development program carried out by the government as part of an integrated system for financial development. The steps aim to build an advanced tax administration that operates efficiently and effectively in accordance with quality standards. The amendment aimed also at helping the Tax Authority to achieve all its objectives and competencies, such as developing the tax system and raising levels of performance efficiency in tax collection. The move also came in a bid to promote tax awareness and raise the level of tax compliance among taxpayers.

The Tax Authority shall implement its jurisdiction as specified by the law, regulations and issued decisions and they are as follow:

• Draw up an inventory of taxpayers and make the necessary procedures to record the data and the information related to the taxpayers
• Make the necessary procedures to assess or estimate and collect the imposed taxes on income or on the expenditure or other types of taxes and deliver its income to the Public treasury
• Make the necessary procedures to exempt from tax by applying the stipulated laws
• Make the necessary procedures to collect taxes by following the stipulated procedures in the System for Collection of taxes, fees and other amounts payable to the Units of the Administrative Apparatus of the State promulgated by Royal Decree No. 94/32.

Tax Authority service for taxpayers

The Tax Authority has recently launched a package of electronic services that contribute significantly to saving effort, time and cost. These electronic services make it possible to simplify and facilitate the fulfillment of tax obligations. The Tax Authority via its website provides these services.

During the past period, the Tax Authority succeeded in electronically linking it with some government agencies such as the Public Administration of Customs, the Ministry of Labour, the Ministry of Commerce, Industry and Investment Promotion, the Ministry of Finance and others.

A number of departments have also been established in Sohar, Nizwa and Salalah. The Tax Authority is considering establishing other departments in other regions to take its services close to the taxable person.

Types of taxes in Oman

Income Tax

Income tax is one of the most widespread taxes in the world as it is the best way to assess the ability of taxpayers to pay the levied tax as a percentage of the income generated. This tax applies to the total income achieved by taxable entities within a year of practising their various commercial activities. According to the provisions of Article (1) of the Income Tax Law, a taxable person means an Omani establishment or company, or permanent establishment. The tax does not include the income of natural persons (individuals), but is imposed on the income of legal persons, and therefore it is calculated based on their net profits so that they can deduct the expenses that are spent in order to achieve income during the year.

On the other hand, there are activities or incomes that are exempted from income tax as detailed in the Income Tax Law and the Executive Regulations. The most important exemptions include but are not
limited to:

1. Gains from the disposal of securities listed on the Muscat Securities Market, as well as dividends from Omani companies.
2. Income that is realised from undertaking the main activity in an industrial project for a specified period, according to the regulations regulating exemptions.
3. The total income generated by non-Omani companies operating in Oman at air or maritime navigation activities provided that Omani companies are treated with same in those countries.

Indirect taxes: Excise Tax and Value Added Tax (VAT)

The Excise Tax is levied on goods that have negative effects on public health or the environment at varying rates. This includes soft drinks, alcoholic drinks, energy drinks, sweetened drinks, electronic smoking devices and the like. It also includes liquids used in such electronic and similar devices, and tobacco and its derivatives.

The value-added tax is imposed on most goods and services supplied at each stage of the supply chain, starting with import and production, through distribution and up to the consumer-end. Tax exemptions or zero tax applies to some supplies of goods and services, such as basic food commodities and educational and health services.

Small businesses and income tax

Small enterprises have been taken into account for income tax. There is a chapter in the Income Tax Law regarding the tax on small establishments. The establishment can be an Omani establishment or company, provided that the following conditions are met:

– The establishment should be practising only a commercial, industrial, craft or service activity. This does not include establishments operating in:

• Sea and air transportation
• Banks, insurance and financial institutions
• Extraction of natural wealth resources
• Concession of public utilities

– Its capital is registered in the commercial register – at the beginning of the tax year and should not exceed sixty thousand Omani rials.

– The total income achieved at the end of the tax year shall not exceed one hundred and fifty thousand Omani rials.

– The average number of its employees during the tax year should not exceed twenty-five workers.

Tax benefits for small businesses

The Income Tax Law includes a special treatment for small businesses in the event that the above-mentioned conditions are met. The aim of this is to reduce the tax burden on this category of establishments. These Omani establishments or companies benefit from a number of tax advantages, including the application of a rate of three per cent instead of the general rate of 15 per cent of the taxable income of any establishment for any tax year.

Those establishments managed full-time by the owner or one of the partners are exempted from this tax. Establishments that employ at least two Omanis are also exempted.

In order to simplify the tax procedures for these small enterprises and reduce the costs of their compliance with tax obligations, they were asked only to keep simplified accounting records. Small enterprises need to fill up a simplified tax return form ‘Declaration No. 17.’ Moreover, such enterprises do not need to get their accounts audited by an accredited auditing office. This reinforces the principle of voluntary tax compliance.

Promoting the legal requirements of small businesses

The Tax Authority urged all taxpayers to voluntarily comply with all requirements of tax laws. They only need to:

1. Register and update the data in the Tax Authority portal.

2. Submit the correct tax returns electronically at the specified times.

3. Pay the tax amount (if any) at the due time.

In particular, the Tax Authority calls on small businesses who did not comply with the requirements of the Income Tax Act to comply immediately and voluntarily register at the Tax Authority portal. They were also requested to pay any unpaid taxes if any.

It is worth noting that the Income Tax Law has imposed many penalties and fines on tax evaders. The Tax Authority has the right to enforce those penalties and fines. Tax Authority has also the right to estimate and levy tax on tax evaders. The Tax Authority urges all taxable entities to register, sub tax declarations and pay any outstanding payments.

Tax Awareness and Education

The Tax Authority intensifies its awareness campaigns to inform taxpayers of their legal obligations and duties. During the coming period, the Tax Authority will publish a series of articles that will explain the taxable entities for the various tax laws. The articles will also give details on taxable revenues, how to submit them, the tax rates and various exemptions. They will also highlight fines and penalties, and other topics of interest to the taxable person.