Oman plans to take an extraordinary measure in the Gulf region, as part of a larger program to resolve a budget deficit that is ballooning due to low oil prices and the coronavirus pandemic, it will start taxing the income of wealthy individuals starting in 2022.
The strategy is expected to bring the budget deficit forecast to hit almost 19 percent of gross domestic product by the International Monetary Fund in 2020 to 1.7 percent by 2024 by reducing government expenditure while spurring investment, the Ministry of Finance said in a statement. The income tax revenue can be used for the funding of social programs.
The tax will apply to high-income persons, but the income brackets are not defined in the plan. The planning of implementation is still being studied.
In the Arab Gulf economies, affluent governments have long steered away from imposing taxation of any sort, both because the tax-free status of the region was used to draw labor and industry. But the 2014 oil crash forced them to rethink the situation. The value-added taxes were implemented in Oman, Saudi Arabia and the UAE and have started to re-evaluate lucrative state-supported benefits. The impact of coronavirus has increased the government’s need for money.
The government of Oman is also preparing to progressively reduce state subsidies for electricity and water until they are eliminated by 2025, as well as to extend visa-fee exemptions to more countries in an attempt to stimulate tourism.
According to its bond prospectus, Last year, Oman’s debt soared to 60 percent of GDP. The sultanate sold $1.25 billion in seven-year securities in October and $750 million in notes maturing in 2032, and it was in talks to obtain support from some states in the country.
International Monetary Fund sees Oman’s economy shrinking by 10 percent this year, the sharpest among its peers.
Monica Malik, chief economist at Abu Dhabi Commercial Bank said, “Reducing the fiscal deficit so sharply by 2024 looks ambitious, given the impact of fiscal consolidation on the economy and social aspects. Any signs of sustained progress with the reform program will be very positive.”