Oman Introduces Personal Income Tax

By Adedapo Adesanya

Oman has become the first Gulf state to introduce a personal income tax on high earners from 2022.

The country’s finance ministry said in a 2020-2024 economic plan that the Gulf state seeks to restore finances battered by low oil prices.

None of the seven Gulf Cooperation Council (GCC) states, which include Bahrain, Kuwait, Iraq, Oman, Qatar, Saudi Arabia and the United Arab Emirates, who are all oil producers, currently collect income tax from individuals.

The Middle Eastern oil producer heavily depends on oil income for its budget and has been one of the most affected economies in the region after prices crashed earlier this year.

Oman’s Sultan Haitham, who took power in January, last month approved the medium-term fiscal plan to make government finances sustainable as the coronavirus crisis and low oil prices strain state coffers.

Analysts believe that the significant move could be a wake-up call for other states as governments in Arab Gulf economies have long steered clear of imposing taxes of any kind, both because the region’s tax-free status has been used to attract labour and companies.

However, the oil crash in 2014 forced them to change their thinking. Oman, Saudi Arabia and the UAE have all introduced value-added taxes and began re-evaluating generous state-supported benefits. The impact of the coronavirus has only deepened the need to beef up government coffers.

By reducing government spending while spurring investments, the plan is projected to bring the budget deficit – estimated to reach nearly 19 per cent of gross domestic product in 2020 by the International Monetary Fund to 1.7 per cent by 2024.

It was disclosed that revenue from the income tax will be used to fund social programmes.

Oman, which is one of the poorer Gulf sheikhdoms, is looking to its wealthier neighbours for financial assistance. It has already received $1 billion in direct financial aid from Qatar as the sultanate tries to mitigate its economic crisis.

There are expectations that Oman’s fiscal deficit at nearly 20 per cent of GDP in 2020, up from around 8 per cent of GDP in 2019, as a 32 per cent crash in revenues driven by lower oil prices and production would more than offset an 8-per cent cut in spending.