Oman’s 2021 General Budget, replete with bold but judicious measures to drive fiscal sustainability amid a severe economic crunch, sets the tone for the implementation of the road map for achieving the country’s long-term growth objectives enshrined in the Oman 2040 Vision blueprint.
According to a key Muscat-based tax expert, the Budget also has the potential to put the Omani economy, weighed down by low oil prices and the coronavirus pandemic, on a promising path to recovery.
“This is an aspirational and prudent budget that has all of the essential ingredients necessary to invigorate the economy and return the country to health and eventual prosperity over the long-term,” commented Alkesh Joshi (pictured), Oman Tax Leader and MENA Energy Tax Leader at global professional services firm EY.
In comments to the Observer, Joshi listed a number of standout features in the Budget that, he said, augurs well for efforts to put the country on a stronger economic and fiscal footing in the shortest possible time.
“Take, for example, the assumed average oil price for the 2021 Budget: a conservative $45 per barrel is, in fact, a realistic basis for 2021 as crude is expected to remain range-bound between $48 and $52 per barrel for most of the year,” he pointed out.
In comparison, the 2020 Budget was based on an average oil price assumption of $58 per barrel, although the actual oil price per barrel for Oman crude in 2020 was $48 per barrel. A conservative $45 is a good fit for the 2021 Budget, with average daily production estimated at 960,000 barrels for the year, which is slightly lower than the actual average daily production of 974,000 barrels in 2020, he explained.
Importantly, the Budget also makes a robust commitment to safeguarding the vital interests and concerns of economically disadvantaged sections. The government has carefully factored the impacts of subsidy reforms and new tax levies on their economic well-being.
“It’s true that the budget takes into account savings in subsidy of RO 215 million, but in reality, the total allocation towards subsidy and other expenditure has been increased from 6 per cent to 10 per cent in the current budget. This is a huge step in ensuring that the vulnerable households are taken care of by reallocation of the resources for the needy sections of the society notably via the National Subsidy System (NSS).”
Additionally, despite measures to reduce overall expenditure, spending on basic services such as education, health care, housing and social welfare as a percentage of total expenditure has been maintained in line with the previous year.
“This portrays the Sultanate’s emphasis on providing high quality basic social services for its citizens, while there is also a clear directive to enhance the delivery of education through digital means,” he remarked.
Significantly, revenues from taxes and fees will play an important role in buoying the government’s fiscals in the face of a sharp decline from hydrocarbon export earnings, said Joshi.
“We are witnessing a notable increase in the taxes and fees collection from 21 per cent in 2020 to 35 per cent in the 2021 budget, which is largely due to the introduction of tax reforms. The introduction of the new taxes (expansion of Excise Tax and VAT) is a huge opportunity for our citizens and expatriates living in Oman to contribute towards nation-building activities. VAT is a socially level playing tax system as it is linked to consumption with majority of the needy items being zero rated. Hence the lower income sections of the society do not end up with a large VAT bill,” he explained.
Indeed, non-oil revenue as a percentage of total revenue has been budgeted at 37 per cent, which is the highest ever and aligns very well with the Vision 2040 goal of diversifying the economy away from oil, he added.
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