The 2018 State Budget, unveiled earlier this week, has been structured to further underpin the private sector’s increasingly important role in the nation’s economic development, according to a leading Muscat-based tax expert.
Ashok Hariharan (pictured), Partner and Head of Tax for KPMG in the Lower Gulf, said the budget re-emphasises the crucial role for the private sector in the capital formation and economic growth of Oman.
“During 2017, the private sector accounted for 60 per cent of the new investments. The Government expects a similar contribution from the private sector during 2018 and to ensure that this happens, has promised that new foreign capital investment as well as the public private partnership and bankruptcy laws would be issued in the coming year. This growth in private sector investment should provide greater employment opportunities to Omani citizens,” Hariharan stated.
In comments to the Observer, the tax affairs professional also highlighted the government’s continuing efforts to curb the budget deficit by curtailing public expenditure.
“It’s encouraging to note that the significant increase in oil prices over the last few months, which has resulted in containing the budget deficit for 2017 (RO 3.5 billion) almost within the level budgeted for 2017 (RO 3 billion), has not resulted in the Government going easy over the measures it has been taking over the last two years in controlling public spending and reigning in the budgeted deficit. It targets the budget deficit at RO 3 billion or 10 per cent of GDP and seeks to restrict public spending to no more than 40-45 per cent of the GDP,” said Hariharan.
Controlling public spending, he pointed out, will also help in bringing down the break-even price of oil for a zero deficit. “This is now believed to be less than $75 per barrel of oil. During 2017 public spending was 2 per cent less than in 2016 although 9 per cent higher than budget. The 2018 public spending is budgeted at RO 12.5 billion compared to the estimated actual of RO 12.7 billion in 2017.”
Of significance, the tax expert noted, is the manner in which the government has conservatively budgeted its revenues at $50 per barrel which is estimated to be the price realised by Oman during 2017. This compares with predictions by global experts of an oil price of $55 – 60 per barrel during 2018.
Another key highlight of the 2018 State Budget, Hariharan said, is the continued emphasis on diversification away from oil, with non-oil earnings projected to account for at least 30 per cent of total revenues.
Tax revenues are expected to rise as well. Corporate income tax revenues are expected to grow by 25 per cent to RO 500 million, while Excise Tax on selective products will be introduced during 2018.
Additionally, the Budget reiterates the government’s commitment to making sure that the projects identified through Tanfeedh (The National Programme for Enhancing Economic Diversification) during 2016/17 gets implemented, he said.
“Overall, a prudent budget. Its success would depend on fast tracking the reforms it has promised to encourage private sector investment,” Hariharan added in conclusion.