Oman to earn RO250mn from VAT: Expert

5/19/2016 6:49:55 AM

(MENAFN- Muscat Daily) Muscat-

A financial expert has said that value added tax (VAT) will help Oman to generate RO250mn giving a boost to the economy.

H E Darwish bin Ismail bin Ali al Balushi, Minister Responsible for Financial Affairs had said earlier this year that VAT is most likely to be introduced across the GCC states by 2018.

Speaking to Muscat Daily on the sidelines of a seminar on Oman VAT at Grand Hyatt Muscat, Ahmed Amor el Esry, managing partner at Ernst & Young (EY) said, 'We understand as a conservative estimate initially VAT may generate around RO250mn for the Omani economy. In the long term as the economy grows, revenue from VAT should grow. There may also be a possibility on increasing the VAT rate.'

Esry added, 'A uniform rate of five per cent is expected to prevail across the GCC. VAT is a consumption tax, implying that the end consumers will bear the entire tax burden. GCC governments have taken a wise decision to exempt certain basic goods and services. This includes education, healthcare and essential food items etc.'

Commenting on if it was the right time to introduce VAT in times of sluggish economy, he said, 'The GCC economies are facing severe economic challenges, have significant deficits at the moment and are trying to increase their non-oil revenues.'

He advised businesses to prepare for VAT's implementation. 'Corporates should start their preparations now. We have also shared our global experiences on VAT implementation in countries such as Malaysia which implemented the tax effective January 2015. Businesses require about 18 months to prepare for VAT. If they start late, they might struggle to meet the deadline for VAT implementation. The GCC framework is expected to be released in June this year. Each country will then issue its domestic legislation subsequently.'

Alkesh Joshi, director of Tax Advisory Services, EY said, 'The 'Go Live' date has been known as the governments of GCC states have been discussing the subject for a while and they have made public announcements. Recent development in this field is that they are reaching consensus about the common framework and we assume that they could announce by this June or July. Indications are very clear that the GCC is very near to introduction of VAT.'

Explaining the functioning of VAT, he said, 'We will have to wait for the specific regulations to get details of the functioning. However, we expect the goods and services to be split into exempt, standard rated and zero-rated for VAT purposes. If we talk about electronics, mobile phones, and cars will be subject to VAT.

'Consumers will be affected but there may not be a VAT on daily consumption for an individual like basic food items, healthcare, education and some financial services. Consumers would not be significantly affected if their consumption is based around the basics and essentials.'

Explaining if it could trigger inflation, he said, 'It will surely add an extra burden but the economic situation has been affected by low oil prices. However, the tax rate will be only five per cent unlike 20 per cent in some parts of the world. I think this will rationalise consumption behaviour. It should not lead to a very heavy inflationary impact on the economy.

'Prices would certainly go up but it may not lead to an exact five percent increase in inflation because several of the services will be exempted or zero rated. We will see how it affects the economy.'

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