Oman 2017 budget projects smaller deficit as govt plans tax hikes

Oman’s government released a 2017 budget plan on Sunday that projected a smaller deficit but included fresh austerity steps and tight curbs on spending because of low oil prices, which are hurting state revenues.

Government spending this year is projected to total OMR11.7bn ($30.4bn) and revenues OMR8.7bn, which would result in a deficit of OMR3bn.

That compares with the government’s original 2016 budget plan of OMR11.9bn in spending, OMR8.6bn in revenues and a OMR3.3bn deficit.

The finance ministry said the government planned a string of steps this year to boost non-oil revenues, including changes to income tax, new taxation of goods such as tobacco and alcohol, and changes to fees charged for hiring foreign workers.

Tax exemptions for companies will be cut, electricity tariffs raised for large corporate and government consumers, and fees amended for some services provided by ministries and government bodies.

Shares in two telecommunications firms, Oman Telecommunications and Ooredoo Oman, fell sharply on Sunday after they said the royalty which they paid to the government had been raised to 12 per cent from 7 per cent.

“Due to the financial pressure on the state budget caused by public salaries, openings for new jobs in the public sector will be limited. It will be up to the private sector to create jobs and employ job seekers,” the ministry said.

Oman lacks the ample oil and fiscal reserves of its wealthy neighbours and its finances have been hit hard by the plunge of oil prices since 2014. In 2015, its deficit was worth 16.5 per cent of gross domestic product, according to the International Monetary Fund.

The 2017 budget assumes an average oil price of $45 a barrel. The ministry said it would cover the deficit this year with OMR2.1bn of international borrowing, OMR400m of domestic borrowing and the drawdown of OMR500m from financial reserves.

Oman has said it plans to sell stakes in a string of state companies over the next several years. Procedures to sell shares in the first of these, Muscat Electricity Distribution Co, will be completed in the first half of 2017, the ministry said.

The 2016 budget was also based on an oil price assumption of $45 a barrel but, partly because oil actually averaged $39 last year, the deficit came in much higher than expected at about OMR5.3bn.