Oman to introduce VAT for the first time in view of the economic impact of COVID

The application of VAT will affect a wide range of products and services as part of the new economic measures being implemented by the Sultanate
Omán, que anunció a principios de esta semana la introducción de un IVA del 5% AFP/ MOHAMMED MAHJOUB

AFP/ MOHAMMED MAHJOUB  -   Oman, which announced earlier this week the introduction of a VAT rate of 5%.

Oman will for the first time levy a value added tax (VAT) of 5 per cent as a result of the economic impact of COVID and the fall in oil prices. According to the official ONA news agency, this new measure will seek to mitigate the economic impact the pandemic is having on the country.

According to the head of the Omani Tax Authority, Saud Bin Nasser al-Shukaily, the tax is expected to raise "400 million Omani rials per year", equivalent to about $1.041 billion and 1.5 per cent of the Sultanate's Gross Domestic Product.

Al-Shukaily said the tax will not be applied to more than 93 basic commodities, medicines and educational services, so "the impact on the consumer will be minimal".

Oman becomes the fourth Gulf Cooperation Council (GCC) country to introduce VAT, followed by the UAE, Bahrain and Saudi Arabia. 

The impact of the pandemic on GCC economies and falling oil prices have forced member countries to implement economic austerity measures, spending cuts and tax increases. In Saudi Arabia, VAT has been tripled to 300% as an alternative source of revenue, thereby reducing dependence on oil and securing additional revenues. 

Una mujer con mascarillas como medida de protección contra la pandemia de coronavirus, compra verduras en un supermercado de un centro comercial de Mascate, la capital de Omán, el 14 de octubre de 2020 AFP/ MOHAMMED MAHJOUB
AFP/ MOHAMMED MAHJOUB-A woman wearing masks as a protective measure against the coronavirus pandemic, shops for vegetables at a supermarket in a shopping mall in Muscat, the capital of Oman, 14 October 2020.

The Gulf states' economic dependence on oil as the world's main oil exporters has allowed them to develop on a global scale and build up a strong reserve base. However, this dependence on oil has forced the Gulf states to seek alternative sources of revenue as it makes them vulnerable to oil price fluctuations. 

The pandemic has had a major impact on oil prices, resulting in large state deficits that threaten the structure of the state and its political stability. Oman's main objectives, set out in its Long-Term Development Strategy, are to reduce this dependence and promote growth, diversify output and exports away from oil along with the creation of employment opportunities. 

Similarly, Oman continues to promote foreign investment as a measure to be implemented for the development of infrastructure and the formation of a business-friendly environment, which would generate competition among GCC member states.