Calls to increase Oman’s tax base

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The government in Oman has been urged to cast its taxation net wider to fund the state’s economic and social welfare programmes, with the need for additional revenue flows likely to become more pressing if global oil prices ease further as some analysts have predicted.

The state’s current tax income is equivalent to around 1.5% of GDP, much lower than in developed economies. The US has a tax-to-GDP ratio of 24%, while in the UK the figure is 34.3%, slightly higher than the OECD average of 34%.

According to Davis Kallukaran, managing partner at financial and tax consultancy Crowe Howarth Oman, the state collects around $909m in income tax and $467m in Customs duties annually, a minor part of the Sultanate’s budgetary needs.

To meet its funding requirements, which include investments in new capital works and development projects, Kallukaran said the government needed to create new revenue streams, with taxation being the obvious choice.

In October, the IMF forecast that the Omani budget would slip into deficit in 2015, predicting a funding shortfall of 0.2%, which would rise to 7.1% of GDP by 2018 – a budgetary gap of $6.8bn. However, recent announcements by the government, including proposed wage increases for public servants and higher spending on social welfare could see the shortfall widen further, especially if oil prices decline. Though the draft 2014 budget does project a $4.68bn deficit, state revenue figures are based on an oil price of $85 per barrel, according to the Oman News Agency, some $20 below current market rates. While this means next year the budget will likely remain in surplus, higher spending and a dip in oil prices could well see the IMF’s forecast borne out.

Tax options floated

In its 2013 Article IV staff report, issued in July, the IMF recommended Oman consider introducing a value-added tax, a measure the fund has proposed for adoption by all GCC member states. Omani officials have said such a tax could be introduced in the next few years, but no firm commitment to imposing a goods and services levy has been made.

Taxing the remittances of foreign workers, which amounted to $8.1bn in 2012, is another option. In late November the economic and financial committee of the Shura Council recommended that a 2% tax be charged on the money transfers of the approximately1.5m expatriates employed in Oman, who represent more than one-third of the population, a move that would add more than $160m to the state coffers.

Current tax outlook

However, for the time being at least, a levy on remittances seems unlikely, with the minister responsible for financial affairs, Darwish bin Ismail Al Balushi, saying on December 1 that such a tax was not envisioned for the 2014 budget. Any such tax could be imposed only after extensive reviews and consultation, the minister said, though he did not rule out the proposal, saying the Shura Council’s suggestion would be studied.

According to a recent report by consultancy PricewaterhouseCoopers, Oman ranks ninth in the world in terms of the relative ease of paying taxes, taking into account the time to comply, the number of necessary payments and tax rates. Firms operating in the Sultanate make an average of 14 tax payments a year, with the process taking up 68 hours annually, compared to an international average of 26.7 payments and 268 hours. Oman’s “total tax rate” (including corporate, labour, property and other taxes) amounts to 22%, far less than the 43.1% average for the 189 countries surveyed.

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