OMAN INTRODUCES VAT

OMAN INTRODUCES VAT

On 16th April, Oman became the fourth member of the GCC to introduce Value Added Tax (VAT), initially to be levied at a rate of 5 per cent.  All six member states signed the Unified VAT Agreement back in June 2016.  Both the UAE and Saudi Arabia launched their VAT regimes on 1 January 2018, while Bahrain followed suit a year later.  VAT is expected to be introduced in Qatar at some point later this year ahead of the 2022 World Cup.  Qatar is understood also to be considering an introductory rate of 5% applied to most goods and services but with an exemption for financial services.  It is understood that Kuwait is planning to implement VAT, perhaps from some point next year.

The Gulf states have long been understood as low-tax or zero tax economies.  Their energy wealth has enabled all GCC governments to avoid the need for direct taxation on personal income, making them especially attractive for expatriate workers, and to maintain relatively low costs of living for their citizens.  In 2016, the Gulf States agreed to a Common Excise Tax Agreement that levied an indirect tax on goods deemed to be harmful to the environment or human health.  In 2018, the Gulf states collectively agreed that the introduction of a region-wide VAT would be an important step in the gradual process of economic diversification and reform.  

Lower than anticipated oil revenues over the past year also appear to have accelerated the Gulf governments’ appetite for revenue generation through taxation.  Selected cities in the Gulf have implemented tourist-orientated taxes/service charges over the past few years.  Most GCC economies have introduced excise tax on a limited range of goods since 2016. 

Significantly, Saudi Arabia raised the general rate of VAT, from its opening level of 5 per cent to 15 per cent in July last year.  While the UAE, Bahrain and now Oman continue to levy VAT at 5 per cent, there are some signs of concern amongst their publics that where Saudi Arabia has gone, the rest of the Gulf may soon follow, making taxation a more prominent factor in public life. The differences in VAT rates across the six member states, as the EU experience has shown, may create undesired effects in the regional economy.  Equally, increased cooperation and harmonisation on VAT also supports increased regional integration for the GCC.