Income tax

Oman set to introduce personal income tax

After two years of suspense, the Gulf state of Oman could pull the trigger next year.

“Income tax is still on track,” a source with the Sultanate’s National Balanced Budget Program told Al-Monitor on condition of anonymity. “We have just finished drafting the law and are making operational preparations. We expect personal income tax to be in place in 2023 [probably first half]provided he receives all approvals, including the royal decree.” Two additional sources to the program confirmed the statement.

fitch reviews and S&P Global Ratings has also estimated that Oman is likely to introduce a personal income tax for high earners in 2023. For now, details are scarce.

“Oman is more likely to impose personal income tax in the range of 5-9%,” said Anurag Chaturvedi, managing director of tax consultancy Andersen in the United Arab Emirates (UAE). He told Al-Monitor that industry groups and agencies close to the government expect foreign nationals to face a personal income tax rate of between 5 and 9 percent, likely on income. from Oman above a threshold of $100,000, and Omanis would be subject to 5% tax on their aggregate net income above $1,000,000.

The proceeds will go to social programs, the National Balanced Budget Program source said. Following rare social unrest in May 2021 linked to high unemployment and youth resentment towards the country’s political elite, Omani leaders have pledged to strengthen social safety nets to preserve social and political stability.

The situation is “appropriate” to start taxing personal income, said Haitham Al-Khoshman, a Jordan-based MENA economist with previous experience in Gulf financial institutions. “Now is a time of economic boom for the Gulf region, and most Omanis who live modestly will not object to the taxation of high incomes,” he told Al-Monitor.

Oil prices recently hit their highest level since 2008 in response to the Russian invasion of Ukraine, briefly trading above $139 per barrel in March 2022.

More than immediate revenue, the primary objective of income tax seems to be to lay the foundations for greater redistribution of wealth.

“Not at all at the table now”

Oman’s decision, if upheld, would be the first time a Gulf Cooperation Council (GCC) member state has introduced personal income tax. The winds of change blowing from the southern end of one of the largest tax-free wage bastions in the world could spark the interest of other GCC governments to explore new sources of revenue, such as the added value, in order to diversify their rent-oriented tax landscapes.

The limited nature of hydrocarbon resources, coupled with volatile oil prices and steady population growth, means that “GCC governments cannot rely on oil resources indefinitely to finance their budgets in a sustainable manner,” wrote the International Monetary Fund (IMF). in 2015. Consulting firm Oliver Wyman reported that in 2019, Saudi Arabia earned just 16% of government revenue from taxes, compared to an average of 90% in the OECD countries.

“The most likely candidate to follow Oman on personal income tax would be Bahrain,” Al-Khoshman believes. Even though he started making payments again in its Reserve Fund for Future Generations, the island nation has small oil reserves and a fragile fiscal position. In 2018, neighboring Saudi Arabia, the United Arab Emirates and Kuwait gave Bahrain a $10 billion bailout.

Andersen’s Chaturvedi does not expect any GCC countries except Oman to implement personal income tax by 2030. In the United Arab Emirates, an income tax is not ” not at the table at all at the moment,” said Minister of State for Foreign Trade Thani Al Zeyoudi. Bloomberg in February 2022 following the announcement that the country will start levying a 9% corporation tax in 2023.

Although personal income tax can benefit public finances, it could also make the Gulf countries a less attractive work destination. In the United Arab Emirates, Chaturvedi said the government is focused on attracting global talent by providing long-term residency visas and tax-free income, so it is unlikely to introduce a tax on business. natural persons over the next seven years.

In 2017, the Shura Council of Saudi Arabia considered tax remittances sent by foreign workers to their country — $41 billion in 2021 – before withdrawing the proposal to avoid a backlash.

“Oman may choose to introduce a personal tax linking it to permanent residency or other incentives to make it attractive,” Chaturvedi said. In 2021, Oman launched the Investor Residency Program whereby wealthy foreigners can obtain long-term residency.

“People are stricken with amnesia”

S&P Global Ratings expects Oman’s personal income tax to be “phased in, with a relatively low tax rate. The government is also considering implementing compensation measures.

Omanis interviewed by Al-Monitor said the increase in taxation should be accompanied by greater political representation. Many also prioritized the need for reform and anti-corruption initiatives.

Policymakers reluctant to introduce new taxes as citizens have grown accustomed to tax-free wages – says GCC agreed to implement value added tax in 2016, but Qatar and Kuwait did not. In 1950, Saudi Arabia attempted to introduce a personal income tax for nationals and non-nationals, but the tax law was reformed six months later to exclude citizens and suspended for foreigners in 1975 as oil revenues rose and the Gulf kingdom need for foreign expertise.

“The social texture is almost common in the GCC region: the society is used to the welfare state, so in my opinion, we can expect a major change in the mindset of the region,” said said the source of Oman’s National Program for Balanced Fiscal. reference to personal income tax.

But this has not always been the case. Before the age of oil, taxes were an integral part of the fabric of Gulf societies as commerce and pearl fishing dominated the local economy. “Since time immemorial, taxation has been a norm in Gulf coastal cities,” said Bader Al-Saif, assistant professor of history at Kuwait University, including the pearl season tax, customs, transit tax on re-exported goods, property taxes, tax on renting a shop, etc.

In 1910, eminent the pearl traders have left Kuwait for Bahrain after Mubarak Al-Sabah, then ruler of Kuwait, raised taxes to fund military ambitions.

“People are struck with amnesia because since the oil discoveries in the 1930s, we have seen a halt in taxation if you will,” Al-Saif told Al-Monitor. “The economic structure was completely overhauled and people were numb when the Gulf governments introduced the welfare state system.”

Contributing financially to the common good, however, is no stranger to 21st century citizens of GCC states. Islamic Zakat is a religious contribution that must be paid annually to support charitable purposes and poor or needy members of society.

Al-Saif thinks that the exceptionalism of the Gulf states based on oil rents will not last. “We are like any other society and guess what, taxation has proven useful as a means of organizing state-society relations around the world. We’ve tried it in the past, so it’s not rocket science. »