What is Value Added Tax?
Value Added Tax (VAT) is a tax on consumption of goods and services and is also imposed on goods imported into Oman, with specific exemptions provided in the VAT Law. VAT is an indirect tax and hence, the burden of the tax falls on the final consumer, although value addition due to tax occurs at every intermediate level. Taxable businesses as an agent for the government must calculate and collect the VAT from the consumer and remit the VAT to the Oman Tax Authority within a specified period.
Oman Economy and VAT
The GCC countries agreed to introduce VAT in 2018 and adopted the GCC VAT Framework. Oman initially delayed its implementation to 2019, and with the sluggish economic performance witnessed in the past year, further delayed it to 2021.
In the beginning, Omani business houses raised objections to the implementation of VAT, but with the unprecedented economic situation caused by COVID-19, the decision to enforce the VAT law have been looked at as rather indispensable. Oman faced one of the worst fiscal deficits in early 2020. The International Monetary Fund (IMF) estimates a deficit of 16.9% GDP. By June 2020, unfortunately, the country’s sovereign rating was cut for a second time by Moody’s Investors Service, which predicted a lower crude price environment will likely slash Oman’s oil revenue.
In 2020, the Oman Ministry of Finance issued and implemented several circulars and directives to help government entities curtail their spending. In April 2020, the Ministry announced a cut of OMR 500 Million in the state budget and reduced the salaries of recently employed government officials.
Implementation of VAT in Oman
The VAT of 5% will apply on all goods and services with exception to the following:
The Executive Regulations to the VAT Law is expected to be published in December 2020. Businesses in Oman are gearing to streamline their system to face the VAT implementation in April 2020. Non-resident businesses will be required to register for VAT if they provide taxable supplies.
VAT and the Business Sector
In Oman, the businesses will play the role of a tax collector. The seller or the service provider will bear the costs of collecting and claiming the VAT and complying with the tax obligations under the VAT Law. The businesses are advised to start by registering for the VAT and then proceed to maintain an effective accounting and billing system and maintain accounting records related to VAT. Oman has also decided to digitalise all transactions and report submissions related to VAT. The accounting model within companies needs to be revised to comply with the VAT law.
VAT and the Consumer
VAT Registered companies must impose the VAT on all taxable goods and services they provide. The payment towards the tax will be borne by the consumer who receives the goods or services. In the case of Tourists and non-residents, if the goods are not consumed in Oman, then they will be eligible for a refund of the VAT.
- The taxpayers must submit tax returns, financial statements, records, documents, and others to the Authority electronically.
- The same is to be submitted within 30 days following the end of the Tax Period.
- The Taxable Person has the right to deduct the Input Tax incurred on purchases of Taxable Supplies or Imports for any tax periods.
- If the Taxable Person makes taxable supplies in addition to exempt supplies, or if part of the Goods imported is used for purposes other than the taxable activity, then Input tax is deducted following the conditions and procedures that will be set by the Regulation.
- It is not allowed to deduct input tax from Goods which are prohibited from being imported, or exported, or supplied per the applicable Omani Law.
- A taxable person may deduct input tax within three years from the end of the tax period in which the right to deduct arose.
Assessment of tax in case of failure to file a return
Where a tax return is not filed within the specified time limit, the Oman Tax Authority is authorised to assess the tax for the relevant tax period. The Oman Tax Authority is required to assess such tax within five years from the date when the tax return was due for submission. If the registration were not obtained within the specified time limit, the due period could be extended to 10 years.
Impact of VAT on Oman
The implementation of VAT is expected to have an effective economic impact on Oman. IMF estimates a revenue generation of 1.5 to 3% in non-oil GDP. Experts believe that the implementation of VAT was a necessary step for Oman to generate increased fiscal revenue for public welfare and to achieve economic equilibrium. With the public understanding and accepting post-COVID corrective operations, this was an ideal time to implement the tax law. The 5% VAT will help generate approximately OMR 300 million, which should help offset the pressure on the deficit. But there is still a long way to go for Oman to make up for the loss incurred economically.
Oman’s action plan for 2021
The export of oil and its derivatives solely generated 80% of Oman’s revenue. The push for economic diversification and developing non-oil based revenue streams to reduce reliance on hydrocarbons has been on Oman’s agenda this past decade. Thanks to the Tanfeedh programme and Oman Vision 2040, necessary steps have been taken to promote non-oil based sectors such as fisheries and aquaculture, transport and logistics, manufacturing, mining and tourism.
By April 2021, businesses with activities in Oman will need to consider the implications of VAT on their transactions and ensure that they are ready to comply with the new VAT requirements. Given the relatively short implementation timeline and the fact that the Executive Regulations may not be issued until the end of this year, businesses must start planning for implementation as soon as possible.
Disclaimer: All information in this article is of businessgateways, with inputs from various open sources. businessgateways is not liable in any way for the veracity of the dynamic market information contained.
Webinar on Oman's VAT Law
To know more about VAT and how to prepare your business for the coming year, we suggest attending our introductory webinar on the VAT legislation in Oman.
The tax lawyers of Al-Hashmi Law are presenting a 90-minute webinar that will focus on the VAT Law. The webinar will provide insight on various crucial topics related to the new law such as who must register for VAT, the impact on transactions with other GCC countries, who is liable for the payment of VAT, zero-ratings and exemptions under the law, and how to prepare for the introduction of the new tax.
This webinar will be hosted on The Stage, a promising initiative by businessgateways bringing together the JSRS Community on a common Online Knowledge Sharing Platform.
The JSRS Community
The Joint Supplier Registration System (JSRS) initiated by the Ministry of Energy and Minerals, Oman in 2014, is today the backbone of Oman’s procurement needs. The JSRS was created out of the need for a verified pool of “business ready” Suppliers that Oman’s 350+ Operators, Buyers, EPCs & Main Contractors, can access for all procurement activities across their billions of USD worth projects.
The heart of JSRS is the JSRS Certified Suppliers Network (JSRS CSN) holding thousands of national and international Suppliers serving Oman’s Supply Chain.
For International Suppliers, the JSRS is the gateway to Oman’s business ecosystem. From accessing varied business opportunities to identifying new business partners, the JSRS packs a powerful bundle of options, saving the need for international companies to travel to Oman to establish new business channels.