Analysis
Tax

Oman delays introduction of personal income tax

December 13, 2024, 8:03 AM

Shoppers in Nizwa. Oman already has VAT and a corporate income tax, but has now postponed its plans for personal income tax for high earners — Shoppers in Nizwa. Oman already has VAT and a corporate income tax, but it has postponed plans for personal income tax for high earners

Originally planned for 2026
Would be first for GCC
IMF estimates 2% of state revenue

Oman’s plan to introduce personal income tax for high earners has been put on hold following a meeting on Wednesday of the sultanate’s State Council.

Under the initial draft bill, first introduced in 2022, foreign nationals in Oman who earn over $100,000 would be taxed between 5 to 9 percent from 2026. Omani citizens would be taxed 5 percent on global income exceeding $1 million.

However, it was recommended this week by the Financial and Economic Committee of the State Council to postpone its introduction until the economy strengthens, and pending further analysis into its overall impact.

The committee also unanimously voted in favour of reducing the personal income tax rate in Oman to 5 percent across the board in the draft Individual Tax Law.

“The question is whether the time was right to apply income tax to individuals,” said Dhafer bin Awad Al Shanfari, chairman of the Economic and Financial Committee of the State Council, as quoted by The Arabian Stories news service.

“I prefer not to go into the positive aspects of the tax. It is always misunderstood and the most important thing is whether the timing is right.”

Oman would be the first country in the GCC bloc to implement any form of income tax.

“Overall the measure is unpopular,” says Thomas Vanhee, managing partner at tax consultant Aurifer and affiliate professor at Sorbonne Abu Dhabi. “It would have dented the competitiveness of Oman in the region.”

Figures from Oman’s National Center for Statistics and Information show high-income earners make up around 4 percent of the population.

The International Monetary Fund estimates that money generated from personal income tax would be just 2 percent of total revenue for the Gulf state.

“While creditors may favour a diversified revenue stream, the damage to Oman’s economy from personal income tax would far outweigh its benefits,” wrote Azza Al Habsi, economist at Ominvest, in a social media posting.

Oman is under pressure from the IMF to reduce its dependence on hydrocarbon receipts – the sultanate generates 72 percent of its revenue from oil and gas.

“Fiscally it is attractive for the country as it needs to generate income for development and growth. But it must balance this with ensuring it remains a competitive place to work and do business,” says James Swallow, commercial director at business set-up company Sovereign PPG.

Oman’s diversification efforts appear to be paying dividends. It is positioning itself as a global leader in the hydrogen sector. Non-oil growth accelerated to roughly 4 percent in the first half of the year.

Investment initiatives driven by Future Fund Oman, which aims to allocate OMR2 billion ($5.2 billion) to stimulate economic activity “will continue to underpin non-hydrocarbon growth in 2025”, according to Carla Slim, Mena economist at Standard Chartered.

S&P expects Oman to post fiscal surpluses averaging 1.9 percent of GDP from 2024 to 2027, compared with 2.6 percent in 2023.

Oman’s current tax regime already includes corporate income tax, VAT and excise tax.

“It seems unlikely that Oman will introduce other new taxes at this stage,” says Nils Vanhassel, a senior associate in the Middle East tax team at law firm DLA Piper.

A joint committee is to be formed between the State Council and the Majlis a’Shura assembly, with further discussions planned on the draft law.

“This is likely going to be one of those things that will be a can that they will kick down the road,” says Vanhee.