Oman to implement VAT on 16 April

Oman will implement a 5pc value-added tax (VAT) from 16 April, in a move aimed at easing the country's long-standing reliance on hydrocarbons to fund its budget.

Oman will follow the UAE, Saudi Arabia and Bahrain as the fourth Gulf Co-operation Council (GCC) country to introduce VAT under the GCC VAT framework that was signed in 2016.

VAT in Oman will be levied on most goods and services, with exceptions for essential food items, medical care, education and financial services, according to Oman's Tax Authority chairman Saud Nassir al-Shukaili. This should raise around 400mn Omani rials ($1.04bn) each year, equivalent to around 1.5pc of gross domestic product (GDP), he said.

The move is the latest in a raft of measures implemented by Oman to help bolster its finances in the face of the twin challenges of Covid-19 and lower oil prices, particularly given its heavy reliance on hydrocarbon exports. Oman expects oil and gas exports to deliver 63pc of its overall budget revenues this year, down from 72pc in 2020.

In the past 12 months Oman has slimmed down the government, kick-started a drive to rationalise state spending and announced plans for a new bond and sukuk offering. But years of heavy reliance on debt to offset a widening budget deficit prompted all three major credit rating agencies to downgrade Oman's credit rating to junk, so tapping the bond markets will not come cheap.

Oman's oil revenues have also been curtailed by its participation in the Opec+ production cut agreement, which has required it to cap its crude output at well below its near 925,000 b/d capacity since May 2020. Oman has pledged to limit its production at 732,000 b/d until the end of April, and although it should be afforded some opportunity to raise output beyond then, its production is likely to remain somewhat constrained until the expiration of the current agreement in April 2022.

By Nader Itayim