By Conrad Prabhu — MUSCAT: Dec. 17: Value Added Tax (VAT) could generate in excess of $1 billion per annum as additional revenue to the Omani government once it comes into force tentatively in just over a year, according to a high-level government official. Mohammed Jawad bin Hassan bin Suleiman, Adviser at the Ministry of Finance, said the authorities are preparing to put in place the required framework for the rollout of VAT as part of a GCC-wide introduction of the new tax regime planned with effect from January 1, 2018. “VAT will be implemented based on the decision of the GCC Supreme Council. We are currently preparing the groundwork for this to be implemented in Oman,” Mohammed Jawad said.
“Revenues from VAT are estimated at RO 400 million ($1.032 billion) annually,” he added in comments to journalists on the sidelines of a tax workshop organised by prominent tax advisory firm Crowe Horwarth International, at the Sheraton Oman Hotel on Wednesday.
The adviser’s revelations come against a backdrop of efforts by tax pundits and advisory services providers to galvanise the business community into getting suitably geared for the roll-out of value added tax. Those preparations, which require accounting staff to be suitably trained and IT software and systems to be appropriately updated, are generally perceived as woefully inadequate given the limited time available in the lead up to VAT’s implementation in 2018.
According to Davis Kallukaran, Managing Partner of Crowe Horwath Oman, businesses are now coming around and getting geared to priming their accounting apparatuses for the introduction of VAT.
“Local firms are becoming aware that VAT will be a reality soon and so need to be suitably prepared. While firms like Crowe Horwath are providing the education and training support, the businesses would have to modify their in-house systems to make them ready for VAT. They also need to be well aware of their respective obligations under VAT.”
Value added tax, the tax consultant notes, marks a maiden effort by the six-nation Gulf Cooperation Council (GCC) to introduce a unified tax system across the region. “This is the first time that a very concrete, unified effort is being made by the GCC since its formation in 1981 to implement a VAT regime.”
The new tax regime, he said, promises to be a lucrative source of revenue for GCC governments. “Combined GCC imports and exports are estimated at $1.2 trillion annually, of which around $600 billion represents imports alone. Add to this value created within the bloc through the production of goods and services, the VAT potential could possibly be in the range of $25–30 billion, which is a good source of revenue,” he explained.
Commenting on the timeframe for implementation of VAT, Kallukaran pointed out that a framework currently under formulation by Oman and its GCC partners envisages a rollout of the tax regime with effect from January 1, 2018.
However, there is speculation that it could also be deferred to 2019, primarily because of developments, notably in the United Arab Emirates and Qatar, where preparations for the World Expo and World Cup respectively are in full swing. With contracts for these mega developments already drawn up and agreed, an introduction of VAT in the interim could potentially add a premium, of around 5 per cent (assuming VAT is applied at a flat 5 per cent rate) to contract costs.
The tax expert also sought to dispel the misconception in some circles that VAT will supplant other existing taxes.
“VAT will be an additional tax, and as such, will not displace any other tax currently in force. It is a simplified form of taxation that is called by other labels in various countries, such as Sales Tax, General Sales Tax, or Consumption Tax, and so on.
It is also a clean taxation system where the potential for tax evasion is minimal. Businesses must also be mindful of the fines and penalty clauses, which may be severe for non-compliance and failure and submit timely returns.”