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On Friday (April 16), Oman enacted the 5% value added tax (VAT) on several goods and services.

This comes after a six-month transitional period for the application of the tax on most goods and services in addition to goods imported into the Sultanate, with some exceptions specified in the law.

5% VAT Enacted on Goods and Services in Oman

The Oman government has expanded the list of goods subject to zero-rate VAT from 93 basic food commodities to 488. Food commodities subject to zero-rate VAT are vegetables, fruits, legumes, grains, dates, spices, oils, fish, red meat and poultry, among others, The National reported.

In line with this, services such as education, health care, and financial services will be exempt from VAT.

The Sultanate is expected to generate about 400 million Omani riyals ($1 billion) in revenue annually, which is equivalent to 1.5 per cent of the total value of the gross domestic product through the new tax scheme.

Meanwhile, all six Gulf countries agreed to introduce a 5 per cent VAT in 2018 after a slump in oil prices hit their revenues. Saudi Arabia, the UAE and Bahrain have already introduced the tax, with Riyadh tripling it in the previous year.

Oman’s economy was hit hard by the coronavirus pandemic and low oil prices. The sultanate’s economy has shrunk by 6.4 per cent in 2020 but is estimated to make a modest recovery to 1.8 per cent growth this year, according to the International Monetary Fund in February.

According to experts, the Oman government will use the tax revenue to develop infrastructure, provide rebates and fiscal benefits to worst-hit industries and offer relief to pandemic-hit businesses.

Oman is all set to roll out the 5% Value Added Tax (VAT) across the country. Oman is the third in the Arab world to introduce the 5% VAT following the UAE and Saudi Arabia, which both implemented the taxation scheme back in 2018.

The new regulation is expected to generate 1.5% of Oman’s gross domestic product (GDP) and generate approximately 400 million Omani riyals annually.

Oman to Enforce 5% VAT Starting April 16 — Credits: sabinoparente/Freepik

Oman Next to Enforce 5% VAT After UAE, Saudi Arabia

According to Saud bin Nasser Al Shukaili, Oman’s Director of Taxation, all the preparations and requirements needed to implement VAT are in place. This includes the promulgation of tax-related regulations and the operation of tax computer systems and electronic devices, as well as electronic linking with relevant authorities, Gulf News reported.

The Heath of Tax Authority also approved the Executive Regulations for the Value Added Tax (VAT) Law.

It noted that the five per cent applies to most goods and services, but certain sets of goods and services offered are exempt. In addition to products that are exempt by law, tariffs are also levied on goods imported from the Sultanate.

The list of VAT-exempt products and services includes medical, educational, financial services, basic food and supplies for people with special needs, and other products and services.

“All the necessary preparations and requirements for the implementation of the value-added tax decided on April 16 have been completed in terms of issuing legislation related to tax, operating the tax computer system, and electronic linking with the authorities concerned with the application and strengthening the human cadre in the agency,” Al Shukaili said.

Al Shukaili, emphasized that the VAT is necessary for the current global economic climate, and will approximately generate 1.5 per cent of the value in GDP. “OMR 400 million is expected to be collected annually from the application of this tax,” he added.