Businesses are eagerly awaiting Oman’s budget for 2016 and its 5-year plan for 2016-2020, both of which are expected to be decreed on 3 January 2016. With oil prices continuing to fall well the price of around 80 US dollars (USD) used to budget the 2015 revenues, the Omani government is under pressure to review fiscal policies and consider options to increase revenue from taxes.
According to a recent KPMG newsletter, the 2015 budget projected a 25 percent increase in revenues from taxes and fees without any change to corporate tax rates. Tax revenues are expected to decline in 2016 if the tax rates and tax base remain the same as in 2015. Some tax policy options that the Omani government could consider include:
- Increasing corporate income tax from its current 12 percent rate. Kuwait and Saudi Arabia currently levy corporate income tax at rates of 15 percent and 20 percent, respectively.
- Removing the annual exemption threshold of 30,000 Omani rial (OMR; about USD 80,000).
- Widening the scope of withholding taxes. Currently only royalties (which include consideration for the use/right to use industrial, scientific and commercial equipment, i.e. rentals), consideration for carrying on research and development, consideration for use/right to use computer software and management fees are subject to withholding taxes. Countries like Saudi Arabia also levy withholding taxes on fees for technical services.
- Widening the tax base to cover businesses not registered with the tax authorities. Unlike the other Gulf Cooperation Council (GCC) countries, Oman already taxes all businesses irrespective of nationality. Current tax laws require all taxpayers to file returns, and only a few taxpayers who meet specific criteria are exempt. About 300,000 businesses are registered with Oman’s Ministry of Commerce and Industry, but only about 60,000 of them file tax returns. One option to improve compliance is to introduce a minimum amount of tax for all entities that are registered with the ministry.
Amendments to increase tax rates and the tax base could be introduced before the end of this year, independent of the budget announcement in January 2016. Amendments to other provisions of the tax law are also expected, including provisions to deal with Islamic Finance and amendments to current charitable donations rules to clarify that gifts-in-kind are tax-deductible, subject to the limitations currently provided in the tax law, as mentioned in the KPMG newsletter.
In the past, there has been debate about the introduction of a remittance tax and personal income tax, but these taxes are unlikely to be considered in the short term. However, Oman is actively pursuing the introduction of value-added taxes, either in conjunction with the other GCC countries or, if needed, on its own. Given the time needed to implement such a VAT, the earliest year it could take effect is 2017.
