How is Introduction of VAT going to Affect Oman Economy?

SHARE

Pratibha Devasenapathy, Mar-15-2021

Sultanate of Oman is all set to implement VAT across the country. Oman will introduce a value added tax (VAT) system aligned with the GCC VAT Framework with effect from April 2021 at a standard rate of 5%, with limited zero-ratings but the highest number of exemptions that we have seen so far in the region. Oman becomes the fourth Gulf Cooperation Council (GCC) member state to implement VAT, following the UAE, Kingdom of Saudi Arabia and Bahrain.

Tax Authority (TA) announced the start of VAT Registration as of 1st February 2021 until 15th March 2021 for taxable persons with annual supplies exceeding or expected to exceed One million (OMR). The voluntary registration will also be available for taxable persons with annual supplies or expenses exceeding or expected to exceed (19.250) OMR. The registration must be made through Oman’s official Tax Authority's Online Portal.

Check out: Which businesses should register for VAT

Value added tax (VAT) is not just an accounting or tax challenge. It impacts every part of the business with regard to cash flow, costing of capital, pricing of products and services, financial reporting, tax accounting, compliance processes, supply chain, procurement and contracting, and all technology currently enabling this ecosystem. In addition, there will be significant training needs for personnel to understand and operate effectively under a VAT regime.

Impact of VAT in Oman economy:

Omanis had opposed the introduction of VAT fearing the impact on the country’s economy However, as the country battles against COVID-19 and a fall in oil prices, VAT implementation would help the country get its economy back on track.

The introduction of VAT is expected to bring in a whole lot of changes in the Oman economy. Let’s take a look at how introduction of VAT will impact the Oman economy:

  • VAT to generate additional revenue

Earnings from value added tax (VAT) are estimated to bring an additional revenue to Oman’s economy. This additional source of revenue via VAT besides the major stream of revenue from oil and gas will further strengthen the fiscal revenue for public welfare and economic growth. While the excise tax will boost the country’s coffers, it is the imminent implementation of VAT that is expected to have the greatest impact - the IMF estimated the generation of new revenue between 1.5 and three percent of non-oil GDP, from the introduction of VAT

  • Help overcome state’s debt obligations

It is expected that VAT will help supply the state treasury to meet its deficit and debt obligations, help diversify Oman’s income away from oil, and strengthen the Sultanate’s competitiveness levels and raise its sovereign rating.

  • Initial inflation

While the introduction of VAT in Oman could have an initial inflationary effect on the economy, the curve generally tends to flatten after the first year of implementation as observed in other countries, including the GCC countries that have already implemented VAT. Now in most purchases, the public will have to pay an addition of 5%. However, since the VAT rate is comparatively low than the other GCC countries, it is expected that the increased prices will not have a major impact in terms of consumers.

  • Social and economic upliftment

According to Oman’s Tax Authority, Oman’s VAT rate is at par with the United Arab Emirates, and significantly lower than the tax rates levied in Australia (10 per cent), Egypt (14 per cent), Turkey (18 per cent), Germany (19 per cent), France, and the UK (both 20 per cent). VAT is not a direct source of income in that it will be put into the economy, but it will be used by the government to fund their services and their programmes, some of which will be used for social and economic development.

Historically, about 80% of Oman’s revenue has been generated by the exports of oil and its derivatives. Economic diversification and developing non-oil based revenue streams in order to reduce reliance on hydrocarbons has been on Oman’s agenda for the past period.

With only a few weeks left before VAT is implemented in Oman, it is extremely crucial for businesses to stay VAT compliant. TallyPrime ensures that the software is always prepared for any latest statutory changes for smooth functioning of your business. Give us a free-trial and stay on top of your tax game, always.

Know more about Oman VAT

VAT Rate in Oman, Who Should Register Under Oman VAT, VAT Registration Guide in Oman, Zero-Rated supplies in Oman VAT, Exempt Supplies in Oman VAT, What is VAT and How does it work, VAT Registration Deadline in Oman, VAT Invoice in Oman

 

Latest Blogs

Tally Blogs

How to Calculate VAT in Oman?

Yarab A   Mar-26-2021
Tally Blogs

What are the Taxable Goods and Services Under VAT in Oman?

Pratibha Devasenapathy   Mar-24-2021
Tally Blogs

How does VAT affect Omani businesses?

Pratibha Devasenapathy   Mar-24-2021
Tally Blogs

Stay VAT Compliant with TallyPrime’s Amazing Capabilities

Pratibha Devasenapathy   Mar-15-2021
Tally Blogs

What Are the Benefits of Applying VAT in Oman?

Pratibha Devasenapathy   Mar-15-2021