Alkesh Joshi, EY Partner – Oman Tax Leader and MENA Energy Tax Leader shares insights on VAT introduction in Oman and its impact

-An OERLive Exclusive

The introduction of the value-added tax (VAT) regime in Oman effective from April 16, 2021 marks a new era of fiscal tools being made available to the government of Oman for fiscal balancing. 2020 has been the year of Tax Reform in Oman with several significant enhancements being announced. The most impactful of these announcements will certainly be the introduction of VAT at a rate of 5 percent. 

VAT will not only have an impact on the end consumers; it will also have an impact on the businesses. VAT will require virtually all functions within an organization to be reviewed, including information technology, finance, sales, procurement, legal and human resources. While it is the finance function that usually drives the progress of VAT implementation, the efforts need to be enabled throughout a range of processes and technologies within the organization. Some of the impacts of VAT across the business functions are outlined below.

VAT, along with Excise Tax and Customs Duty, belongs to a family of taxes that fall under the heading of Indirect Tax as they are a tax on consumption and not income.

Impact on the common man:

With the lowest standard rate of VAT at 5 percent in Oman, as compared to anywhere in the world and a broad list of reliefs – the proposed VAT system in Oman would appear to be, comparatively, consumer-friendly. Whilst the introduction of VAT in Oman may come with an inflationary effect, it is not expected to be significant. The reliefs defined in the newly issued VAT law focuses heavily on alleviating the burden of tax on goods and services which are essential to everyday life such as rental of residential units, basic food, healthcare, and education. Certain limited reliefs have also been extended to sectors that significantly contribute to the national gross domestic product such as oil and gas as well as financial services. 

The Oman VAT law includes two types of reliefs, a zero rate, and an exemption, which both result in no VAT being directly charged to the customer. However, the practical application of these reliefs is very different as explained below:

The zero-rate relief takes its literal meaning such that VAT will be charged at zero percent. Examples include, but are not limited to, the sale of basic food items, medical supplies, certain investment-grade metals, international transport, certain hydrocarbon products, and exports

In contrast, the VAT exemption applies to different a range of supplies including certain financial services, healthcare, education, undeveloped land, residential rents, resale of the residential property, and local passenger transport.

Except for international transport, most of those items which benefit from the zero-rate are goods. Owing to the way the VAT system works the vendor, who will incur VAT on their purchases, will be able to recover the VAT they have incurred in the course of making these zero-rated sales. This means that VAT should not be a cost to either the vendor or the customer. Based on our experience across the region, we have set out the below essentials of VAT readiness which every business seeking to be compliant with the VAT law should ensure at the VAT go-live date as well as the post-go-live date.

Registration 

Businesses in Oman would have already applied for registrations and got their registration numbers. Small and Medium Enterprises with limited annual turnover have been given slightly longer time to get VAT compliant. VAT is known to be a document-driven tax, and tax invoices are amongst the key documents driving VAT compliance. All taxable businesses will be required to issue valid tax invoices for all taxable supplies made by them, and similarly receive valid tax invoices for all purchases. Non-VAT compliant invoices can be rejected by customers and may subject the business to penalties to be applied by the Tax Authority in accordance with the provisions of the VAT Law.

VAT returns

A key aspect of VAT compliance is submitting a periodic VAT return after each tax period. Tax periods are generally not less than one month and can be calendar quarters. VAT returns will be due at the end of the month following the end of the tax period. In the VAT return businesses are expected to submit values of their turnover, categorized into the different VAT treatments, in addition to the total output and input VAT amounts and the net VAT amount payable or refundable.