By Alkesh Joshi — Value Added Tax (VAT) is expected to go-live in Oman during 2018 and the thought of having to pay tax on most purchases has many consumers concerned about their future spending. Paying tax is a new concept for individuals in Oman. However, consumer tax is a concept which has been used to create a sustainable source of income for the governments in over 135 countries. Clearly global experience has shown that, if administered and reinvested correctly, VAT revenue could prove a real game-changer for the Omani economy. VAT, in its various forms, has withstood the test of time and experience around the world. The introduction of indirect taxes on consumption is by no means a new concept and has existed long before the formal introduction of VAT in Europe.
For example a Beard Tax was introduced in Russia in the late 17th century as a measure to deter the general public from growing a beard. Clearly such a tax as a beard tax would be unpopular and impractical in the modern world today!
History is full of examples of other strange consumption taxes however what they generally have had in common is the idea that the wealthier should pay more. For example in the 18th century there was a window and fireplace tax applicable in England whereby the general public would need to pay tax in accordance to the number of windows and fireplaces they had in their house.
If we fast forward to the modern day such taxes have withstood the test of time and become far more sophisticated owing to advances in modern technology.
Governments do not need to levy these taxes in arbitrary ways such as taxing beards, and today we see consumption taxes applied to goods and services with the onus on businesses to account for and collect the tax rather than the individual.
It is widely thought that VAT was first introduced by the British in 1973 at a rate of 10 per cent. In fact, the first VAT system was introduced by the French in the 1950s.
Since then VAT has become a very important source of government revenue accounting for about 50 per cent of the current day tax collection in France and in the rest of the EU.
In the Oman VAT system many essential goods and services such as basic foods, education and healthcare will not be subject to VAT.
In this manner the GCC VAT taxes have been well designed and better targeted at consumer spending on non-essential items.
In this way, the VAT system that we will see in Oman will include the positive influences from the modern day VAT systems and begin at a point of sophistication which took Europe 60 years of learning to get to.
The introduction of taxes on the individual consumers represents a necessary, if daunting, change which the general public will need to embrace.
EY Oman is committed to sharing their experience through this column on a regular basis to raise the awareness on various important tax related topics. EY is a market leader with 45 dedicated tax professionals based in Oman committed to delivering high quality tax services to its clients.
(Alkesh Joshi is the Director — Tax Advisory Services at EY Oman)
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