Income tax on the cards for high income earners in Oman: IMF

Dubai - It is expected that Oman can introduce income tax in 2022.

International Monetary Fund (IMF) has reiterated that Oman is planning to introduce income tax on high income earners as part of its medium-term fiscal balance plan.

The Fund welcomed the fiscal balance plan and said introducing value-added tax (VAT) in 2021, a personal income tax on high-income earners being developed, and full-year impact of the expansion of the excise tax base in 2020 are key to reinforcing fiscal sustainability and alleviate financial pressure. In addition, containing the wage bill via civil service reforms; targeting energy subsidies to the most vulnerable groups; streamlining capital expenditure; and broad-based improvements in expenditure efficiency are also key to reforms.

When introduced, Oman will be the first country in the GCC to levy income tax in the region. It is expected that Oman can introduce income tax in 2022.

Oman aims to bring fiscal deficit down to 1.7 per cent of gross domestic product by 2024, from a preliminary deficit of 15.8 per cent this year.

“These policies would also help mitigate structural weaknesses in public finances, notably heavy reliance on hydrocarbon revenue and rigidities in expenditure. Given the impact of fiscal consolidation on economic activity and household incomes, sustained commitment and active outreach to build broad support to the proposed measures would be needed to successfully implement the plan.

“Inadequate implementation of the fiscal adjustment plan could trigger a negative shift in investor sentiment, heightening financing risks. Finally, establishing a sound medium term fiscal framework and a clear fiscal anchor would help in achieving the targeted consolidation, and the IMF stands ready to provide technical assistance in this area,” it said.

Economy shrinks 6.4% in 2020

Oman’s economy likely shrank 6.4 per cent in 2020 due to the coronavirus crisis and low oil prices putting a strain on the state’s coffers.

That would be a narrower contraction than the 10 per cent fall the IMF forecast for Oman last year. But the sultanate’s economy was still hit hard, with its non-hydrocarbon GDP estimated to have reduced by 10 per cent.

The construction, hospitality, and wholesale and retail trade sectors experienced the heaviest toll, the fund said, while inflation turned slightly negative, owing to less demand.

The IMF forecast a 2020 global contraction of 4.4 per cent in its last World Economic Outlook, an improvement over a 5.2 per cent contraction predicted in June 2020, but said it was still the worst economic crisis since the 1930s Great Depression.

Oman’s fiscal deficit widened to 17.3 per cent of gross domestic product (GDP) and was financed by external bond issuance, drawdown of deposits and sovereign funds, and privatization proceeds, the Fund said.