Oman: regional pioneer in the implementation of income taxes

The Sultanate of Oman issued a royal decree establishing a tax on individual income. This makes it the first country in the Gulf and the Gulf Cooperation Council (GCC) to issue a personal income tax. The new 5% tax is expected to come into effect in 2028 and will affect those earning more than 42,000 Omani rials, equivalent to £109,000 per year.  


This measure, which challenges decades of tradition of reluctance to direct taxation, is part of the Personal Income Tax Law that expands the government's sources of revenue. It breaks somewhat with the sole dependence on income from oil activity, but Oman, as a wealthy nation and producer of oil and natural gas, continues to work tirelessly and diversify its sources of revenue.
  
The country's official news agency has announced the details of the new tax, and the Ministry of Economy has added that this measure will affect the top 1% of the Sultanate's taxpayers. Economy Minister Saeed bin Mohammed Al-Saqri said this will help reduce dependence on resource revenues and maintain established levels of social spending.

The most notable attraction of many Gulf states for foreigners is that they do not impose income taxes, which makes neighbouring countries such as Saudi Arabia, the United Arab Emirates and Qatar view Oman's decision with caution. It is understood that Oman is also the smallest economy in the Persian Gulf and that in mid-2020 it launched a fiscal programme aimed at reducing public debt, diversifying sources of revenue and stimulating economic growth.


The Omani Tax Authority announced in a statement that the bill introduces deductions and exemptions that value the extension of the Sultanate's social dimension with expenditure on education, health, inheritance, zakat, donations and housing, among the main areas. It also stressed that it will not affect 99% of society and that it is a tool to complement the tax system in line with Oman's current economic and social situation and to contribute to the objectives of the Oman Vision 2040 programme, which aims to break dependence on oil and diversify the sources of financing for the Omani economy. The central objective is to achieve a 15% increase in GDP by 2030 and 18% by 2040 and to achieve effective wealth redistribution that promotes social justice. Specifically, the tax will contribute to the general state budget, which will finance a large part of the costs of the social protection system.

The director of the plan, Karima bint Mubarak Al-Saadiah, stressed the need to establish the necessary team and requirements to implement the tax in practice. Specifically, the official executive regulations of the law will be issued within one year of the law's publication in the Official State Gazette.
  
Through this new decree, Oman is expected to develop a smarter economy and protect state finances from the fluctuations and risks posed by resources such as oil and gas as primary sources of financing. Furthermore, although it is prudent, it could be a catalyst for other neighbouring countries or at least the beginning of significant changes in the future fiscal sphere. Regardless of how limited the application of the tax may be, it represents a shift in regional financial development, with the Sultanate of Oman seeking to move forward and eager to preserve its competitiveness, especially as the Gulf region becomes increasingly attractive.

However, although it may discourage foreigners or be seen as an attack by the 1% sectors, it is in line with the international trend towards fair quotas against tax evasion.