Oman Is On The Cusp Of Taking The Historical Decision To Introduce Personal Income Tax

Posted on    28 April 2022
Oman Is On The Cusp Of Taking The Historical Decision To Introduce Personal Income Tax

With the world waking up to the damage done to the global economy by tax havens, there is mounting pressure on the gulf nations to change and rationalize their taxation policies. The Gulf nations have been long known for having very minimal taxation of any kind to attract business to their shores. While UAE has also been toying with plans to implement a corporate tax, Oman has been moving towards implementing a personal income tax on high net worth individuals. Fitch Ratings and S&P Global have predicted that Oman could lose its tax haven status and implement an income tax by 2023.

The income tax is expected to be implemented in the highest strata of society at a rate of 5-9%. Agencies close to the government expect foreign nationals would be subject to a personal income tax rate between 5-9%, likely on Oman-sourced income above a threshold of $100,000, and Omanis would be subject to 5% tax on their net global income above $1,000,000. The tax proceeds will go towards implementing social programs and improving the social fabric of the nation. The Omani leadership was rattled by protests in May 2021 over high unemployment, showing the growing resentment among the youth towards the monarchy. With the Oil prices at their highest since 2008, the booming economy presents the perfect window of opportunity to implement new taxes without fear of repercussions.

Oman’s foray into income tax is a new step for a region known for its tax-free economy and rent-driven fiscal landscape. The result of Oman’s decision could culminate in other GCC nations exploring new taxations like Value added tax to diversify their income portfolio. In a 2015 statement by IMF it was stated that, due to the finite nature of oil wealth, its volatile price, and steady population growth across the middle east, the GCC nations cannot rely on their sovereign funds derived from oil export to finance the running of their nations.

Bahrain is also likely to make the transition and lose its tax haven status in the coming years. Although it resumed making payments into its Future Generations Reserve Fund, the island country has small oil reserves and weak fiscal positions. In 2018, neighbouring Saudi Arabia, the UAE, and Kuwait gave Bahrain a $10 billion bailout.

Although personal income tax could benefit public finances, it might also make Gulf nations a less attractive work destination. The governments across the gulf focus on attracting global talent by providing long-term residency visas and tax-free income, hence it is unlikely to implement the personal tax in the next seven years. Hence it is highly unlikely that countries like UAE and Saudi Arabia implement any income tax in the coming years.

Link - https://www.al-monitor.com/originals/2022/04/oman-cusp-introducing-personal-income-tax?amp



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