Oman could become the first country in the Gulf Cooperation Council to introduce value added tax as it looks to raise revenues, according to reports.
Oman Daily Observer cites an official familiar with the matter as saying the “final touches” are being made to the country’s draft law relating to VAT.
“It is only a matter of timing,” he said, without specifying the tax rate.
“There will be no exemptions, and all consumers will pay the VAT upon its implementation,” he said, adding, “key sectors, sectors such as health, education and social services may not be included in the new tax net”.
The source said around 94 food items would also be exempt and the country expected to raise OMR 300m ($779m) each year from the levy for state coffers.
However, he ruled out any plans to introduce income tax in the country, according to the publication.
A GCC-wide agreement to implement a VAT rate of 5 per cent is in the works with the UAE already confirming its plans.
Last month, the emirates said it would implement the levy from January 1 2018. Under the agreement, UAE minister of state for financial affairs Obaid Humaid Al Tayer said other countries in the region would have until January 1 2019 to follow suit.
He said at least 100 foot items, bicycles, healthcare and education would be exempt from VAT, which is expected to raise Dhs 12bn ($3.2bn) for the country in its first year.
In a report this month, consultancy firm EY’s MENA indirect tax leader Finbarr Sexton said VAT would have a “broad impact” on businesses in the region.
“It will diversify government revenue sources and reduce reliance on oil revenues to finance government expenditures,” he said. “The additional revenues collected are likely to fund programmes for the development of job opportunities for nationals and improve education and healthcare in the GCC.”
But he warned that there would be severe penalties for non-compliance.
“All businesses must undertake a review of their current contracts to determine if VAT has been appropriately addressed,” he said.
The implementation of VAT in the GCC is being driven by a prolonged decline in Brent crude prices from a $115-per-barrel peak in mid-2014 to around $40 this month.
GCC countries are expected to post average fiscal deficits of 16 per cent this year, with a $275bn regional shortfall, according to the International Monetary Fund.