Muscat: An increase in corporate income tax from 12 per cent to 15 per cent will adversely affect the net profits as well as the ability of listed companies to distribute higher dividends, according to a leading brokerage firm.
“We estimate a decline of OMR30 million in the net profit, or 4 per cent year-on-year, for the MSM-listed companies as a result of the increase in tax rate alone. We are yet to calculate the impact on profitability arising from the removal of standard exemption,” said United Securities in a research note.
“The increase in tax rate would have a negative impact on dividend distribution as well from next year. The withholding tax on dividend to non-residents might affect the distribution policy of power utilities as the majority shareholders of these companies are foreign non-resident entities.”
Out of the OMR452 million collected as corporate income tax in 2015, 28.5 per cent was contributed by the MSM listed companies. Also, tax paid by the MSM companies for the first three quarters of 2016 increased by 33 per cent, compared to the same period a year ago. “We attribute this increase to the growth in profit of companies as well as increased efficiency in tax collection by authorities,” noted United Securities.
However, the Sultanate’s total corporate income tax collection fell by 14 per cent to OMR367.8 million during the first 11 months of 2016, against OMR427.6 million for the same period of 2015. The government estimated the corporate tax revenue at OMR520 million in the 2016 budget proposal.
The stock market’s price-earning valuations have expanded to 12.5 multiples for 2017 from 11.7 multiples, as a result of the change in tax policies. “However, we feel that most of these impacts are already factored in as the policy changes were announced in early 2016.”
Last week, corporate income tax in Oman was increased from 12 per cent to 15 per cent and certain exemptions in Oman’s existing tax law were scrapped with effect from the tax assessment year 2017.
The government has cancelled the tax exemption limit of OMR30,000 in net profits.
Taking into consideration the condition of the small enterprises, some tax provisions were introduced specifically for them. Simple procedures for tax declaration, audit, tax assessment and record keeping were also introduced. The amendment also included imposing a reduced tax rate of 3 per cent on the establishments that meet the requirements stipulated by the Law. A flat rate of 3 per cent tax has been introduced for all companies under the current tax exemption threshold of OMR30,000 worth of profits per annum. These companies will now pay 3 per cent tax with effect from the start of the 2017 tax year, subject to meeting certain qualifying criteria. Mining, private schools, hotels, universities and nurseries will no longer get the benefit of tax exemption.