Oman postpones implementation of Value-Added Taxes

Value-added tax (VAT) will be implemented in Oman in 2019, the country has announced. Unconfirmed reports revealed that Kuwait might also follow suit.

Gulf Cooperation Council (GCC) countries are expected to start applying the five-percent VAT in the beginning of January 2018, as part of the Unified VAT Agreement for the Cooperation Council for the Arab States of the Gulf and in a pursuit to find new income sources.

An official from the Omani finance ministry attributed the postponement of the decision to granting public and private sectors the chance to finalize related procedures and laws. The official affirmed that imposing the selective tax on some items would commence in the second half of 2018.

Saudi Arabia and the UAE said they are prepared to implement VAT in January 2018, while other states are taking the required legal and administrative measures in a slow pattern.

Oman will impose a new tax on soft drinks and tobacco by mid-2018, a tax that was previously imposed by other GCC states this year.

The International Monetary Fund has estimated a 5 percent VAT in Oman could raise about 1.7 percent of gross domestic product, or around $1.3 billion, for the government.

Earlier this month, Fitch Ratings cut Oman’s credit rating by one notch to BBB-minus - just above junk territory - with a negative outlook, citing the country’s big budget deficit, which it estimated at 12.8 percent of gross domestic product in 2017. Standard & Poor’s already rates Omani debt as junk.

Oman’s state budget deficit for the first 10 months of 2017 narrowed to SAR3.20 billion ($8.31 billion) from SAR4.81 billion a year earlier, according to finance ministry data.

Tax experts in the region believe Kuwait will also lag considerably in introducing VAT, partly because of its slow-moving civil service and because its relatively independent parliament may want a say in the process. Bahraini officials have said VAT is expected by mid-2018.

A Qatari finance ministry source told Reuters that Doha was likely to introduce VAT in the second quarter of 2018, but the ministry has not formally announced a date and the tax was not included in the 2018 state budget.