The Value Added Tax (VAT), a consumption tax system has been enforced in Oman on Friday, the 16th April 2021 and the Sultanate has become the fourth country to join the other three GCC member states including the UAE, Saudi Arabia, and Bahrain to introduce this tax.
VAT was originally planned by Oman Tax Authority (OTA) in October 2020 vide Ministerial Decision 53/2021 and Official Gazette no.1383 publishing the regulations with implementation requirements and provided almost six months to the Omanis to be prepared for this tax. The country also plans to enact income tax in the foreseeable future to become the first Gulf nation to do so.
Oman has levied a 5 per cent VAT in line with the ‘Oman Vision 2040’ to diversify its oil-based economy to non-oil sectors e.g. manufacturing, travels and tourism and logistics and also to address its Fiscal Balance Plan for the future.
Both UAE and Saudi Arabia introduced this tax system on 1st January 2018 followed by Bahrain which implemented VAT after one year on 1st January 2019. The Kingdom of Saudi Arabia has already increased its VAT rate by 3 times taking it to 15 per cent since July 2020 to support its healthcare system including relief works and preventive measures for the pandemic.
An OMR400 million (USD 1.04 billion) has been estimated to be raised from this consumption tax this year that comes around 1.5 per cent of the country’s GDP and would help bring down its fiscal deficit.
A Common VAT Agreement was signed by the six GCC countries in June 2016 and the 5% VAT rate announced by Oman is consistent with this GCC Unified Agreement. There are also provisions made in Oman VAT law for zero-rating and exemptions. It is to be noted that the 5 per cent tax rate is one of the lowest rates as per the prevailing global standard.
While Qatar has planned to implement the VAT system in the second or third quarter of 2021 almost streamlining its tax administration system, Dhareeba; the Kuwait government is yet to confirm the VAT implementation schedule. Kuwait parliament deferred the implementation date many times in the past however as reported by the International Monetary Fund (IMF), the country is likely to enact its VAT law by 2022.
The below-mentioned supplies are treated as zero-rated as per the Oman VAT Law and don’t attract VAT due to social necessity.
- Supply of certain food products.
- Supply of some specified medicines and medical equipment.
- Investment in gold, silver, and platinum.
- Supplies related to the transport of goods or passengers made internationally or within the GCC countries including services in connection with transport.
- Cargo and passengers related to international trade.
- Supplies related to oil, oil derivatives and natural gas.
- Some specific supplies made outside GCC countries under certain conditions.
- All goods and services exempt from VAT in Oman and supplied to non-GCC countries.
As per conditions outlined in the Oman VAT Executive-Regulation, the following essential services are exempt from VAT as per the Oman VAT Law.
- Financial services.
- Goods and Services related to health care.
- Resale of residential properties.
- Renting of properties meant for residential purposes.
- Healthcare services.
- Goods and services related to education.
- Transport of local passengers.
Certain imported goods also enjoy the VAT- exempt status under Oman VAT law including returned goods, personal luggage, etc.
Excluding the above-mentioned supplies, all other goods and services in Oman attract VAT at the standard rate of 5% and as mentioned in the Oman VAT Law.