Oman to cash in on goods, services 'and people'

Oman consumers could be made to pay more for goods and services next year, as low oil prices continue to ebb at the Gulf state's finances.

Narrated

4 min read

Paul McLoughlin

06 Nov, 2016

Fishing is one industry Oman's government is keen on boosting [Getty]

Omani shoppers could pay more for goods and services from next year, as the government announces a new tax to bring in urgently needed revenues for the sultanate.

The touted value added tax (VAT) will be introduced either in mid-2017 or the start of 2018, so long as the draft law is approved by legislative bodies next week.

The tax will fall on certain goods and services, but likely exclude fees for healthcare and education, according to Oman Observer.

There will also be additional price rises on alcohol, tobacco and pork - so-called "sin taxes" - as well as on soft and energy drinks.

Other GCC are rolling out similar VAT plans as they try and weather the storm of low oil prices in unison.

Budget boost

The announcement of the new tax has sparked anger and concern from some in Oman, where the hashtag #value_added_tax in Arabic has been trending.

"They said they will find a source of income other than oil, it turns out they were looking into the pockets of Omani citizens to see what's there," quipped one person on Twitter.

But the new tax is expected to bring in between 250 million rials ($650 million) and 300 million rials ($780 million) for the government a year which is looking at ways to boost its finances after a couple of grim years.

— Hamza Al Abri (@al3bri) November 2, 2016 " style="color:#fff;" class="twitter-post-link" target="_blank">Twitter Post

أرجو ألا يفهم المقال بطريقة خاطئة
المقال دعوة للشفافية في التعامل مع الضرائب وطرق صرفها لما فيه المصلحة العامة.#ضريبة_القيمة_المضافة #عمان
— Hamza Al Abri (@al3bri) November 2, 2016

"I hope I am not misunderstood but I would call for transparency in dealing with tax and
show how it will be spent in the public’s interest"

The oil-reliant Gulf state is likely to post a 3.3 billion rial ($8.6 billion) deficit this year, but some fear it could rise to 5 billion rials ($13 billion) as oil prices continue to stay below the government's optimistic projections.

Omani lawmaker Tawfiq al-Lawati said there are concerns of continued economic woes in the longer-term, and budget shortfalls are already having an effect on education and health sectors.

"We don't have a clue where we are heading with this current price range. Tomorrow, if oil prices go back to January levels, then we will be in a big mess," he told Times of Oman.

In 2015, Oman posted a 4.5 billion rial ($11.7 billion) shortfall when oil prices fell to lows of $36 that year.

Oman need oil to go above $73 a barrel to break-even, according to the IMF, and although prices have risen they haven't gone much above the $50 mark.

Although many - such as Saudi Arabia - are optimistic about an imminent rise in oil prices, a new global economic crisis could postpone this for some time.

It means rather than borrowing more, the government is looking at ways to make the economy less vulnerable to oil price shocks in the future.

Recalibrating the economy

In one way, the economic challenges provide for some fresh opportunities to break away from a reliance on commodities and transform into a more modern, dynamic economy.

It could also help the government cut down on some excesses, and encourage youths to engage more in entrepreneurship, trade and modern set skills.

With more 80 percent of the sultanate's revenues come from oil and gas affected by prices, Oman has introduced a range of austerity measures recommended by economists.

These include new corporate tax arrangements, job and salary freezes in the public sector, and unpopular cuts to subsidies.

Muscat is essentially using the opportunity of low oil prices to give further momentum to diversification plans.

There has been some success stories, particularly in tourism, with the sultanate tipped to become the next big destination for upper-income holiday makers.

There is still a long way to go before diversification is realised. Much of the country's hopes lie in a range of expensive infrastructure projects - such as ports - and trade with emerging economies such as friendly neighbour Iran.

Many believe this change can only come from the bottom up through small business, education and invention, and fair taxes.