Muscat: A proper mechanism to collect Value Added Tax (VAT) should be put in place and undercover officials should be deployed to stem evasion, a Majlis Al Shura member said.
Experts expected VAT to contribute an extra OMR300 million annually to government’s coffers.
The government announced on Saturday that VAT will be introduced in Oman in 2018 and an agreement on the new tax rule will be signed next week.
“Since some businessmen have not been following any proper billing system, they need to be brought within the ambit of the tax net.We should have a proper computerised mechanism in place which can be accessed by the ministry and other agencies. There should be undercover officers, too. Such effective measures will help Oman’s economy,” Tawfiq Al Lawati, the Shura member who is also a member of the country’s economic panel, said.
The Shura member added that the picture will be clear only after the final list of taxable items is released.
“Some 20 to 25 items, like food, grocery, medicines and non-luxury items, are supposed to be excluded from the list. We have to wait and see.”
Announcing the 2016 budget, Oman’s government revealed a slew of new taxes and spending cuts.
Following the dip in global oil prices, Oman's budget deficit for the first seven months of 2016 rose by 68.3 per cent to OMR4,023.3 million.
On Saturday, Saud bin Nasser Al Shukaili, Secretary General of Taxation, Ministry of Finance, said a pact on value added tax (VAT) will be signed in the coming days.
He said while the VAT agreement will be signed next week or a little later, the actual implementation will start in 2018 since related local laws have to be place in the Sultanate.
Alkesh Joshi, Director, Tax Advisory Services Division at Ernst & Young Oman, said a 5 per cent VAT would increase the GDP of the Middle East by only 1.4 per cent, so it would not have a significant impact on savings.
“As far as taxes are concerned, the GCC remains one of the lowest-taxed regions in the world. Corporate taxes are only 12 per cent, customs duty is a flat 5 per cent and VAT adds another 5 per cent. Anywhere else in the world, customs duties are much higher.Besides, there is personal income tax and a higher VAT.So the GCC will continue to be attractive for expat population. This tax translates to about OMR250-300 million every year and will offer an additional resource to the government to cut down its budget deficit,” the expert added.
Anchan CK, an investment advisor in Oman, said initially, VAT may generate around OMR260 to OMR300 million for the Omani economy.
“In the long term, as the economy grows, revenue from VAT should grow further. There is also a possibility of the VAT rate going up,” he added.
Manjot Singh, Executive Director at Ernst & Young, said the Gulf Cooperation Council’s (GCC’s) VAT framework would help reduce the budget deficit.
“VAT would put additional funds in the hands of the Oman government, enabling it to continue investing in public utilities and other infrastructure development projects,” the expert said.
Mubeen Khan, Chairman of the Institute of Chartered Accountants of India Muscat Chapter, said a 5 per cent VAT rate would be reasonable.
“In my opinion, this is a historical milestone in the quest for a sustainable Omani economy in the future. The proposed VAT rate of 5 per cent looks reasonable,” the finance expert said.
Ramanuj Venkatesh, Assistant Accounts Manager at Larsen and Toubro, said people will be skeptical about VAT to begin with.
"As the years progress, people will get used to this because in restaurants, they have already introduced tourism levies and service charges, so they will take it in the right sense, but initially, they will be quite skeptical about this,” Ramanuj added.
In August, the World Bank had said Oman's subsidy bill was expected to fall by 64 percent this year as the government was seeking to reform its finances amid lower oil prices.
According to a recent conference held by KPMG in Oman, who are advising the government on VAT and its implementation in Oman that the plan is to implement a VAT rate of 5%.
Essential food items, educational and healthcare institutions are likely to be exempted from VAT,
For the VAT to come into effect in GCC, atleast two countries in the GCC must implement it. The target for the implementation is kept at the beginning of 2018. The VAT is expected to impact consumers as a whole with no differentiation between locals and nationals or high income and low income individuals.