Muscat: A delay is expected in implementing the much-awaited value-added tax (VAT) by the six-member Gulf Cooperation Council (GCC) states as Saudi government recently indicated that it will be implemented in the first quarter of 2018, against an earlier intention to adopt VAT by January 1, 2018.
“That is a possible indication that it will be delayed by three months,” said Ashok Hariharan, Partner and Head of Tax for KPMG in the Lower Gulf.
However, five GCC states have already signed the framework agreement for value-added tax, which is the basic regulation for GCC states to enact separate VAT laws, and the remaining one country is about to sign the same pact, added Hariharan.
Value added tax, which is a tax on consumption and is levied at each stage in the chain of production, will be introduced in the six-member GCC bloc at an expected rate of 5 per cent.
“GCC states are likely to release the VAT framework agreement in the coming days. Once it is done, the countries are free to come up with their own local legislation on VAT, and one would expect that Oman and other GCC states to issue the law in 2017,” noted Hariharan, while making a presentation on the Sultanate’s budget 2017 here on Wednesday.
“Considering a delay in corporate tax law, one would wonder whether VAT law will be issued in 2017. If the government is serious in collecting more taxes, they will have to come out with the law sooner than later.”
If VAT is to be introduced on January 1, 2018, the corporate sector needs the law at least six months prior to the implementation for preparing themselves for the new levy.
Hariharan added that the budget statement issued by the Ministry of Finance also indicates that the Income Tax Law is to be amended in 2017. Such changes, according to KPMG, could include raising of corporate tax rates from 12 per cent to 15 per cent, removal of the tax-free limit of OMR30,000, widening the scope of withholding taxes and removal of many tax exemptions. Although tax legislation is likely to change during 2017, the 2017 budget does not anticipate any changes in government revenues as such changes will affect tax collections only in 2018.
KPMG’s seminar has attracted over 100 top chief executive officers and chief financial officers. This follows a similar presentation earlier in the week at the Oman Society of Contractors, which also received a very positive feedback from the participants.
KPMG’s analysis and insights on Oman’s 2017 budget included a comparison of the 2017 budget numbers with both the ninth five year plan, covering a period from 2016 to 2020 announced last year and the preliminary fiscal results for 2016.
It also analysed the budgeted deficit, debt and the level of debt to gross domestic product.
A comparison of debt-to-gross domestic product (GDP) for other countries in the region and outside was also made.
Hariharan said that the budget numbers reflect prudent fiscal management in line with the realities of a challenging and volatile oil market, as they are based on a conservative oil price of $45 per barrel and not the higher estimate of $55 per barrel considered last year in the five year plan. Despite the lower oil price compared to the ninth five-year plan, the budget deficit has been kept significantly lower than last year’s actual deficit by reducing non-essential expenditure, including defense and security and expenditure by ministries and government units.
Development expenditure was maintained at the level budgeted for 2016 although 14 per cent lower than the five year plan numbers.
GDP growth target
Hariharan also highlighted that the GDP growth of 2 per cent budgeted for 2017 is achievable despite strong economic headwinds and shrinking government expenditure if the government expeditiously implements its Tanfeedh and privatisation programmes. The government has announced plans to sell government assets through a privatisation scheme, which will be formalised by enacting a public-private partnership law. He emphasised that if the government succeeds in improving the investment climate and in enhancing the role of the private sector, as outlined in the five year plan and as successfully achieved in the past particularly in the power, water and port sectors, there is every reason that Oman will emerge successfully from the challenging global and regional economic environment.
Hariharan noted that not only the oil and gas revenue was budgeted on a conservative note, but even the non-oil and gas revenue budget has been reduced by 2 per cent as compared to the amount planned in the five year plan. This is primarily due to a significant reduction in projected corporate tax revenue, which should be partly offset by significant increases in other tax and fee revenue, including non-Omani labour license fees and customs duties.