MUSCAT, OCT 15 – A formal announcement on the introduction of Excise Tax is likely within the next 3 – 6 months — a move that could generate a ballpark RO 300 million in annual revenues for the Omani government, a leading Muscat-based tax expert has said.
The new levy – part of a package of new tax proposals and tax increases unveiled in the 2017 State Budget — is set to be imposed on selected goods and beverages seen to have a level of harm associated with their consumption. Included in the purview of the tax — dubbed ‘Sin Tax’ in some countries — are tobacco, alcohol, sugar-sweetened beverages and energy drinks.
The Gulf Cooperation Council (GCC) bloc has agreed to roll out Excise Tax as part of region-wide moves to bolster state revenues hit by the slump in international oil prices that began in 2014. While Saudi Arabia announced the introduction of the new tax in June this year, the United Arab Emirates followed suit with effect from October 1, 2017.
According to Alkesh Joshi (pictured), Tax Advisory Services Partner at multinational professional services firm EY, an announcement on Excise Tax is forthcoming. “As per our information, Excise Tax is likely to be implemented within three months from the issuance of the Royal Decree promulgating the introduction of this tax. We believe this could be introduced before December 31, 2017 or even during the first quarter of 2018,” he said.
In exclusive remarks to the Observer, Joshi outlined the implications of the new tax for businesses and consumers alike. “Excise Tax is an indirect tax and not a direct tax. The primary difference between an indirect tax and direct tax is that this kind of tax is not related to whether a taxpayer has earned an income or not. If the product is consumed, then the tax incidence materialises. In simple terms, the Excise Tax is incurred when consumption happens. All the stakeholders of the selected products would be affected i.e. distributors, retailers and definitely end consumers,” he explained.
Going by the tariffs already implemented in Saudi Arabia and the UAE, it is expected that tobacco products and energy drinks will attract an excise tax equivalent to 100 per cent of the selling price of these goods, while that on fizzy drinks will be 50 per cent.
The increase will be ultimately borne by consumers, said Joshi.
“Excise Tax rate expected on fizzy drinks will be 50 per cent of the current sale price, or in other words, Excise Tax will be one-third of the final selling price once Excise Tax is introduced,” the tax consultant said, noting that the tax hike would “definitely” have an impact on demand and consumption of fizzy
Importantly, the new tax is expected to shore up government revenues significantly, says Alkesh. “Yes, we believe that the tax rate for fizzy drinks at 50 per cent, tobacco and energy drinks at 100 per cent, is significant. Unfortunately, we do not have specific official numbers available for the anticipated collections by the Government of Oman for Excise Tax.
Based on publically available information about anticipated collections from the introduction of the Excise Tax system in the UAE, the UAE Government would collect $1.9 billion (RO 700 million) approximately. Therefore, even if we make an assumption of 40 per cent of consumption levels in Oman, it would be RO 300 million, also assuming that the actual realisation of the collections in the UAE is materialised,” the tax expert added.