Omani lower house approves income tax

• First Gulf state to introduce levy
• Likely to be below 9%
• GCC neighbours may follow

Oman is on the verge of becoming the first Gulf nation to introduce a personal income tax, as it seeks to diversify revenue streams beyond oil in line with its Vision 2040 plan.

The Majlis al-Shura, the lower house of the Omani parliament, approved a draft law last week, forwarding it to the State Council, the upper house, to approve the final legislative step.

The decision, announced during the Shura’s 12th regular session, signals a shift in a region that has long relied on a no-income-tax policy to attract expatriates and drive economic development.

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Bahrain’s Sico Investment Bank suggested in a research note that Oman’s move could lead to similar measures across the Gulf in the medium term, despite current denials from neighbouring states.

Scott Livermore, chief economist at Oxford Economics Middle East, said that the long-awaited reform has been repeatedly delayed, but now seems imminent. 

“The bill builds on progress over the past few years to broaden the tax base and make public finances more sustainable,” he told AGBI.

“The levy isn’t currently on the cards elsewhere in the GCC, but as the governments look to diversify their revenue base it will be difficult to achieve that without taxing people more, either through direct or indirect measures.”

Shiraz Khan, partner at law firm Al Tamimi, echoed the sentiment but stressed the unique economic contexts of each GCC state. 

“While the implementation of personal income tax in Oman would be an unprecedented development in the GCC, there is currently no indication that other states would follow suit,” he said. 

“Each GCC state possesses distinct economic circumstances and needs. Oman’s decision would reflect its particular national economic requirements.”

Oman News

The proposed tax rates in Oman are expected to be modest, probably between 5 to 9 percent, which will go some way to alleviate concerns among expatriates and foreign investors, Khan said.

Syed Naqi, a senior director at consulting firm Alvarez & Marsal, said that while taxing personal income may affect Oman’s attractiveness to expatriates, it is only one factor among many. 

Combined with broader economic reforms, the tax could enhance transparency and trust, and therefore boost Oman’s regional competitiveness, he said.

Naqi said Oman’s decision could be replicated regionally.

“It also provides a template for other GCC countries, encouraging them to consider similar tax reforms,” he said.

Both Saudi Arabia and the UAE have said that they do not expect to introduce such a levy soon, but Naqi said: “With the introduction of corporate tax and VAT in some of the GCC countries, it is not unreasonable to assume that a form of personal income tax may be introduced by them at some point in the future.”

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Gulf states have introduced a range of tax measures to fund development and reduce reliance on oil and gas revenue.

The UAE, a magnet for the world’s ultra-wealthy, introduced a federal corporate tax on business profits for the first time on June 1 last year, although it kept the rate low, at 9 percent, to maintain attractiveness to business.

The finance ministry said it was launching corporate tax to align with international efforts to combat tax avoidance.

Saudi Arabia has a corporate income tax rate of 20 percent and Qatar levies 10 percent.

The UAE, Saudi Arabia, Oman and Bahrain have introduced VAT at a standard rate of 5 percent. In 2020, the Saudi government raised its rate to 15 percent to make up for revenue losses during the Covid-19 pandemic. Kuwait and Qatar have not yet followed.

Alvarez & Marsal’s Naqi said that the introduction of personal income tax should create a stable and diversified revenue stream for Oman. 

The move is essential if the fiscal deficit is to be reduced and long-term economic stability is to be bolstered, particularly amid fluctuating oil prices, he said. 

Fazeela Gopalani, head of Eurasia and Middle East at the Association of Chartered Certified Accountants, said that personal tax revenues will likely be funneled into sectors like infrastructure, education, healthcare and other core government services.

“Oman will likely allocate tax revenue to economic areas that require additional funding to ensure balanced and sustainable growth,” she said.