Oman to reap revenues from new VAT system

Published on 30 Nov, 2016

As GCC countries start looking at the real impact of the coming Value Added Tax (VAT), planned for the beginning of 2018, the country of Oman is realizing that it may have quite a lot of extra revenues to manage even as financial pressures threaten the region.

Current estimates suggest that Oman could be able to acquire from 200-300 million Omani Rials every year over and above what is now the annual norm.

Experts believe the company can use that additional money to diversify the economy and support government budgets.

In some ways, that is the goal of the VAT: to act as a kind of transitional fiscal reform, as countries go forward and try to modernize economies that have largely been dependent on oil and gas revenues.

“The topic of VAT is extremely vital for the region,” Lindsay Degouve de Nuncques, head of ACCA Middle East states, said in a press release. “As a result of diversification and introducing a new source of income, the implementation of VAT will have prolonged economic benefit as it supports sustained growth. It is encouraging to see that the VAT rate has been kept low at the initiation stage, which will further support businesses, both regionally and in Oman, to implement the change that such introduction brings.”

With the additional money in mind, business leaders and financial experts in Oman and other countries are gathering at trade events around the region to talk about what will be needed to support the VAT.

In addition, countries are considering the challenge of trying to educate a host of additional tax preparers to handle documentation and preparation or filing requirements.

Retailers and others are looking at how the VAT will affect their bottom line, as something seen as a “hidden tax” will hit their desks.

For more analysis, Gulf News Journal spoke to Manish Goyal, associate director, Valuation Advisory, at research firm Aranca.

“While it’s a transaction tax and not an income tax, the compliance is likely to have a significant cost burden and cash flow implications, particularly on SMEs,” Goyal said.

Part of the impact, Goyal suggested, might come in the form of retailers or other sellers absorbing some costs.

“It may also affect the profit margins in few industries such as retail where the companies may choose to not pass the entire burden on the consumers, at least during the initial period,” he said.

That said, Goyal believes the ramp-up to implementation may require some serious girding of IT systems.

“It is important that businesses start developing their VAT implementation strategies in advance, and upgrade their IT and ERP systems to appropriately factor for input and output tax, and the documentation requirements,” he said. “Companies with multilayered supply chains and intra-GCC transactions will have to be more diligent to ensure timely readiness.”