02/11/20

MIDDLE EAST: Oman to introduce income-tax on wealthy individuals.

As published on internationalinvestment.net, Monday 2 November, 2020.

Oman expects to introduce an income tax on high earners in 2022, the finance ministry said in a 2020-2024 economic plan, as the Gulf state seeks to restore finances battered by low oil prices.

None of the seven Gulf Cooperation Council (GCC) states, all oil producers, currently collect income tax from individuals. Oman's Sultan Haitham, who took power in January, last month approved the medium-term fiscal plan to make government finances sustainable as the coronavirus crisis and low oil prices strain state coffers.

"An income tax on individuals would be a first in the Gulf. I think it will be a significant move and closely watched by other GCC countries," said Monica Malik, chief economist at Abu Dhabi Commercial Bank said, according to Reuters.

"This initiative is still under study, all aspects of its application are being considered. It is expected to apply this tax in 2022," the 2020-2024 medium term economic balance document said.

Affluent governments in Arab Gulf economies have long steered clear of imposing taxes of any kind, both because the region's tax-free status has been used to attract labor and companies.

But the oil crash in 2014 forced them to change their thinking. Oman, Saudi Arabia and the UAE have all introduced value-added taxes, and began re-evaluating generous state-supported benefits. The impact of the coronavirus has only deepened the need to beef up government coffers.

By reducing government spending while spurring investments, the plan is projected to bring the budget deficit - estimated to reach nearly 19% of gross domestic product in 2020 by the International Monetary Fund - to 1.7% by 2024, the Ministry of Finance said in an emailed statement. Revenue from the income tax will be used to fund social programmes.

Oman, which is one of the poorer Gulf sheikhdoms, is looking to its wealthier neighbours for financial assistance. It has already received $1bn in direct financial aid from Qatar as the sultanate tries to mitigate its economic crisis.