Economy

Oman to impose income tax on high earners post-2026

By Pramod Kumar, Megha Merani

September 30, 2024, 9:00 AM

Men on the Muscat waterfront. Omani citizens who earn more than $1m will have to pay income tax

Omanis to pay 5% over $1m
Foreigners taxed over $100,000
First such measure in GCC

Oman is expected to implement its proposed personal income tax on high earners after 2026, according to a new report.

In July, the Majlis al-Shura, the lower house of the Omani parliament, approved a draft law on income tax – the first of its kind in the GCC region – forwarding it to the State Council, the upper house, to approve the final legislative step.

There is currently no income tax on citizens or expatriate residents in Oman.

Under the expected new tax brackets, foreign nationals earning over $100,000 in Oman will face a 5 to 9 percent tax, while Omani citizens will be taxed 5 percent on global income exceeding $1 million.

“We expect that the planned personal income tax on high earners, a first in the GCC region, will be introduced after 2026,” ratings agency S&P said in its Oman outlook on Monday.

Oman’s Ministry of Labour recently intensified efforts to enforce Omanisation policies, arresting 611 individuals for illegally occupying positions reserved for nationals during an inspection campaign in Dhofar.

The crackdown uncovered 1,594 labour violations and created over 600 new jobs for Omani citizens.

Despite generating 72 percent of its revenue from oil and gas, the GCC nation is committed to reducing its dependence on hydrocarbons.

The government’s ongoing reforms include subsidy cuts for electricity and water; waste management; public wage reforms; rationalised capital spending and the proposed income tax on high earners.

Gulf states have already 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.

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

‘An unprecedented development’

Shiraz Khan, partner at law firm Al Tamimi, stressed the unique economic contexts of each GCC state and said it was unlikely other neighbours would follow suit.

“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.”

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, value added tax (VAT) and excise tax.

The government is expected to focus on improving corporate tax administration and collection rather than raising its 5 percent VAT rate or government fees to boost non-hydrocarbon revenue.

Saleh Al-Shaibany, an Omani journalist and lecturer, said in an AGBI column that the sultanate’s proposed personal income tax may drive expatriate high earners to move to its tax-free neighbours and deprive the country of both the investment and expertise it needs to shift the economy into a higher gear.

“And when it comes to the crunch, the private sector will be hit harder than the government. The majority of these high-earning expatriates work for private entities,” he said.

Driven by the continued longer-term structural reforms aimed at strengthening economic resilience, S&P raised Oman’s long-term foreign and local currency sovereign credit ratings to “BBB-” from “BB+”. The outlook was maintained at stable.

However, oil production cuts under the Opec+ agreement are expected to limit economic growth to 1.4 percent in 2024.

The hydrocarbon sector output will likely remain flat at 1.04 million barrels per day (bpd) in 2024, compared with 1.06 million bpd in 2023, but condensate and gas production will compensate for lower crude production.

An increase in hydrocarbon output will spur growth in the non-hydrocarbon sector by about 2 percent annually through 2027, the report said.