Oman’s decision to push forward with a personal income tax framework could provide a template for other GCC countries and encourage them to consider similar tax reforms, tax experts said.
Oman’s Shura Council recently moved the draft law on personal income tax to the State Council, Oman News Agency reported. This decision suggests that legislative momentum is gaining ground towards introducing the tax.
If passed, personal income tax will be a first in the GCC region and could affect high-earning foreign workers and wealthy Omani citizens.
“The likelihood of the legislation being enacted is high. The Council of State would normally only make technical comments on the legislation,” said Thomas Vanhee, founding partner of boutique tax advisory services firm Aurifer.
The proposed tax targets high-income earners, with citizens taxed on net global income above $1 million and foreign nationals on Oman-sourced income above $100,000.
The expected reported tax rates range between 5 per cent and 9 per cent for foreign nationals, with a flat rate of 5 per cent for Omanis above the specified threshold.
However, the exact rates and further details are still being finalised.
The levy is expected to be outlined in 2024 and then scheduled to be introduced in January 2025, said James Swallow, commercial director at business formation and support provider PRO Partner Group.
The initial draft bill was introduced in 2022, proposing a tax framework aimed at high earners.
Why is Oman introducing personal income tax?
The potential introduction of personal income tax is in line with Oman’s Vision 2040, aimed at diversifying revenue streams and reducing dependency on oil revenue, according to Syed Naqi, senior director, lead reward and people services for the Middle East at global consultants Alvarez & Marsal.
While Oman “is rich in agriculture, its biggest contributor to gross domestic product remains oil and gas”, with its ratio to GDP rising to 70 per cent, said Anurag Chaturvedi, chief executive of tax advisory firm Andersen UAE.
“This necessitates Oman to diversify its revenue base to replace declining oil revenue, manage the fiscal implications of oil price volatility and address inequalities,” he said.
“Considering fierce competition globally, higher living standards, generous subsidies for food and fuel, and pressure to reduce the fiscal deficit, Oman requires additional non-resource revenue through taxes to sustain them.”
The country’s plan to levy income tax on high earners was mentioned in a bond prospectus published by the finance ministry in 2020 when Oman raised $2 billion in external financing.
The government said in the prospectus that it aims to reduce its reliance on hydrocarbon revenue by the introduction of VAT at 5 per cent, “enhancing the returns from state-owned enterprises [and] introducing income tax for high earners”.
The introduction of personal income tax will create a stable and diversified revenue stream for Oman, said Mr Naqi.
“The move is essential for reducing fiscal deficit and ensuring long-term economic stability, particularly in the face of fluctuating oil prices.
“The income generated from PIT should allow additional resources for investment in public services, infrastructure and social programmes, in line with Oman’s Vision 2040.”