The implementation of a five percent value-added tax (VAT) in Oman is expected to bring $779 million in revenue this year, as per the reports of the country’s news agency.
Earlier this week Oman announced the 2021 budget which forecasts a 14 percent fall in spending and a 19 percent decline in revenue as the finances were ruined by lower crude prices and the COVID-19.
Last year, the country announced it would impose a five percent VAT in line with its efforts to strengthen the economy and control its budget deficit. The total financial boost from the measures taken in the 2021 budget plan is estimated at $9.1 billion.
In 2021, the proceeds from VAT and excise tax is projected to add about $1.1 billion, while revenue collected from income tax on companies is expected at $1.04 billion. The remaining revenue will amount to about $3.6 billion.
The Minister of Finance of the Sultanate of Oman, Sultan bin Salem Al Habsi disclosed that the country’s strategy to reduce the budget deficit to 1.7 percent of GDP by 2024 and to attain a financial surplus of nearly $169 million by 2025.
The 2021 budget shows a 14 percent drop in expenditure from the previous year to $28.1 billion, while revenue for this year is expected to fall to $22.4 billion. The budget deficit is expected at eight percent of GDP in 2021, or nearly $5.7 billion.
According to the calculation of the International Monetary Fund (IMF) the sultanate’s economy is projected to have shrunk 10 percent in 2020, which is among the steepest declines in the Gulf.
“Bond spreads in the nation have increased in 2020 compared to neighbors and while financial buffers remain ample in Kuwait, Qatar, Saudi Arabia and the United Arab Emirates, they are significantly weaker in Bahrain and Oman,” as per the IMF report. The sovereign has three bonds maturing through 2023. This year, its $1.5 billion issuances mature in June.
The largest oil exporter outside of OPEC, Oman has been hard hit by the pandemic as well as lower crude prices and has raised the possibility of assistance from its Gulf neighbors.