Earlier this year, His Majesty Sultan Haitham bin Tarik issued two Royal Decrees promulgating the 10th Five-year Development Plan (“10th FDP”) (RD 1/2021) and the 2021 State Budget.
The State’s General Budget for Fiscal Year 2021 has been prepared in a way that goes in line with the objectives of Oman Vision 2040 and the 10th Five-Year Plan (2021-2025). The measures, endorsed by His Majesty Sultan Haitham bin Tarik, aim to enhance non-oil revenue and reduce spending on government units, resulting in fiscal sustainability. The 2021 Budget also seeks to achieve a set of objectives, notably fiscal sustainability to continue achieving economic growth targets, a diversified economy, and targeted rates of domestic investment and foreign direct investment (FDI). Furthermore, the 2021 Budget endeavours to enable the private sector to play a greater role in accelerating economic growth, and to create more job opportunities.
To learn more about the Oman budget 2021 and the 10th Five-year development plan (2021 - 2025), kindly refer to our first blog post in this series.
Kindly visit our second blog post in this series to gain insight into Oman budget 2021.
Here are some of the Key aspects expected to develop in Fiscal Year 2021
- Revenue from Excise Tax and VAT
In April 2021, Oman implemented VAT. The FY21 Oman budget includes revenue from the VAT of OMR 300 Million and revenue from excise tax at OMR 113 Million (which combined is a total of OMR 413, 51% of revenue forecasted from taxes & fees). This is four times the revenue achieved from indirect tax in the year 2020 (OMR 100 million).
The implementation of VAT is a key measure for economic diversification, aimed to reduce the reliance on the Oil and Gas Sector. The Executive Regulations to the VAT Law are expected to be issued in early 2021.
- Fiscal and financial sustainability initiatives
In view of current economic and financial challenges, Oman is expected to continue executing initiatives aimed at improving the overall financial efficiency of the government and enhancing economic growth. The initiatives include:
• Implementing the MTFP 2020-2024
• Introduction of the Public Debt Law
• Unifying Treasury Account
• performance-driven incentive fiscal plan
• Unifying the government financial system
- Restructuring government companies & revising salaries structures
In accordance with the spending rationalisation plans, it is expected that major restructuring will take place in the government companies as well as in the salary scheme for such companies. Part of that was brought about due to the dissolving of Oman Aviation Group and Transom.
- Labour law reforms
Oman announced plans to amend labour laws, to significantly reduce or end long-standing subsidies and introduce new taxes, simultaneously, ensuring the protection of low-income families. This plan was part of the announcement on introducing personal income tax regime for higher wage earners beginning in 2022. A new Labour Law is expected to be issued in 2021 that will serve the objectives of the 10th FDP and Vision 2040.
More fiscal measures will be taken up in the medium to long term as the Sultanate
continue to focus on diversifying its economy and maintaining an attractive business environment for foreign investments.
Recently, the Ministry of Finance issued a financial circular cancelling several allowances and privileges for Ministers, Under-Secretaries and certain employees in government institutions. This was the result of a continuous effort to review and reform the overall spending in ministries and government units which comprised a major element of the state’s budget (effective from 1 April 2021). These initiatives are expected to help attain better management of the government’s expenditures.
Oman’s Economic Future
Despite the economic challenges resulted from the pandemic and the fall in demand, Oman’s 2021 State budget focuses on economic diversification and the need to manage expenditure, whilst providing means to promote economic stimulus and growth.
Together with the 10th FDP, the budget is paving way for the implementation of Oman Vision 2040. Oman Vision 2040 is based on four pillars:
• Creating wealth through economic diversification and Private Sector partnership
• Ensuring balanced governorates development
• Preserving environment sustainability
• Building world-class Infrastructure
The budget indicates that Oman puts efforts to improve its credit rating by reducing public debt and containing the deficit within sustainable levels.
Strategic steps to diversify the economy, such as widening the tax base scope and outsourcing various Government services to the Private Sector are a step in the right direction, as is the decision to target investment that boost employment and social development.
The Sultanate of Oman has undertaken a set of fiscal and economic measures with the aim to alleviate the consequences of the prevailing pandemic and a sharp decline in oil prices, to minimise the burden on public spending. Further along this stream, steps have been taken to improve the business environment and investment climate should facilitate an increase in Foreign Direct Investment (FDI) which is expected to boost Oman’s economy in the years to come.
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