Interview: Omar Al Sharif

Are companies ready to comply with tax reforms? How much more costly may compliance become?

OMAR AL SHARIF: Most companies were unprepared for the tax reforms introduced in February 2017, especially the extension of withholding tax to dividends, interest and services. There is much greater awareness now, but many businesses still lack a basic understanding of withholding tax, and the in-house expertise and processes needed to manage it.

We see a similar pattern emerging with the value-added tax (VAT). Many larger companies have begun preliminary impact assessment and systems development, but others continue to delay. It is crucial for companies to begin preparations now. The implementation of VAT will require changes to IT systems and processes, training of financial departments and education of business units.

For many taxpayers, costs increased as a result of the February 2017 reforms. This will continue with the introduction of VAT, especially during the implementation period. There will be a need for more resources to prepare returns, systems to gather and manage information, and more tax expertise, either in-house or in the form of external advisors. It’s difficult to quantify the incremental cost, but for some taxpayers it will be substantial.

How would you assess Oman’s ease of paying taxes when compared to the MENA region?

AL SHARIF: According to “Paying Taxes 2018”, a joint publication of PwC and the World Bank, Oman ranks 11th of 190 global economies in ease of paying taxes. The other GCC states – except Saudi Arabia – rank in the top 10 globally. The North African states are well down the list, with Libya, Algeria, and Tunisia at 128th, 157th and 140th, respectively.

In determining the rankings, the publication looks at four key measures: total tax and contribution rate, time required to comply with tax filing obligations, number of payments required and efficiency of certain post-filing processes. The sultanate scores well or very well in all four of these areas.

As indicated in “Paying Taxes 2018”, in many ways the country is already working towards making compliance less complicated. The government should be commended for making the tax system relatively simple, but this can sometimes raise concerns around ambiguity. As such, publishing regulations and information circulars could remove such uncertainty for both the tax authorities and taxpayers.

What kinds of behaviour does the current tax framework aim to influence? What kinds of market distortions should be avoided?

AL SHARIF: The corporate tax framework aims to encourage the development of local small and medium-sized enterprises; attract investment into key sectors such as tourism, manufacturing and education; and provide a fair and equitable environment for long-term foreign investors. It also imposes a cost on foreign persons deriving certain kinds of income from Oman without having a long-term presence.

The current law is more welcoming to foreign investors than the pre-2010 law, which taxed permanent establishments of foreign companies at a higher maximum rate than Omani companies. The recent increase in the corporate income tax rate from 12% to 15% does not change this, nor will the introduction of VAT. The tax framework will continue to provide a level playing field for foreign investors seeking to establish long-term operations in Oman.

Almost any tax policy produces some form of market distortion. In our view, the kinds of distortions that should be avoided are those resulting from tax evasion, granting tax incentives without adhering to clearly defined criteria or favouring foreign taxpayers over local ones. The current tax framework does not encourage any of these problematic distortions.