Thursday 26 / December / 2024
Muscat: Imports from the United Arab Emirates (UAE) and Saudi Arabia, which are going to introduce value added tax (VAT) on January 1, will not cost more for Omani firms during the interim period until the Sultanate introduces the new tax.
As per the framework agreement signed by GCC states last year, exports to a GCC country that has not introduced VAT are considered as ‘zero rated,’ a tax expert told Times of Oman.
“As per the agreement, when goods are imported from the UAE to a GCC country (which is yet to introduce VAT) through an official channel, VAT will be considered as zero rated,” said George Mathew, managing partner of RSM Oman.
Oman market is agog with rumours that the imminent introduction of a 5 per cent VAT in the UAE, which is the largest non-oil trading partner of Oman, will result in a cost escalation on imports from the neighbouring country.
However, Mathew said that if people from Oman go to the UAE and purchase from local shops, they have to pay VAT. “They are like any other customer and the shop owner can not differentiate between a local customer and an Omani customer.”
Oman’s imports
Oman’s imports from the United Arab Emirates stood at OMR2,442.9 million for the first seven months of 2017, down from OMR2,512.2 million for the same period of last year. The UAE constitutes 42.1 per cent of the Sultanate’s total imports for the first seven months between January and July, 2017.
Earlier, the plan was to introduce VAT in all GCC states in January 2018. But that is not going to be the case since a draft regulation on the value added tax is not yet announced by the Sultanate and few other GCC countries.
While Saudi and the UAE are gearing up to introduce VAT on January 1, 2018, other four GCC states – Oman, Qatar, Bahrain and Kuwait – are expected to launch it next year.
Now it appears that it takes between 8 and 12 months for Oman government to introduce the value added tax, which is an indirect tax levied from consumers.
The new VAT law has to be enacted, companies have to launch VAT friendly accounting systems, employees need to be trained and the companies need to understand their supply chain and customers.
Large companies
Large companies have already started planning for VAT implementation in the Sultanate, taking a cue from neighbouring UAE. However, the whole work will gain momentum once the government announces the new law.
The corporate sector will incur a cost to build systems to introduce VAT, which is mainly in the implementation stage. The cost will depend on the size of the company and training needs and it varies from company to company.
An increase in price due to VAT will depend on whether retailers are willing to absorb a portion of the levy in their margin or pass on the entire 5 per cent to consumers. Some products are price sensitive, while others are not too price-sensitive.
VAT is being seen as a major source of revenue for GCC states, including Oman.
In UK, VAT is the second largest revenue source for the government, after income tax. It is two-and-a-half times higher than revenue generated from corporate tax.
The financial sector, insurance, healthcare, education and transport of goods are generally exempted from VAT.
