The importance of taxes in financing public services

Taxes constitute a main item in the annual financial budgets of many countries around the world in order to finance public services such as education, healthcare, infrastructure improvement, security provision and the payment of public-sector salaries, in addition to supporting social affairs.
In today’s world, many countries cannot survive without imposing taxes on institutions and individuals. In some countries, taxes may account for between 60% and 90% of total state revenues. However, a small number of countries are able to dispense with taxes due to their possession of other sources of income such as oil, gas and minerals, or because they have massive sovereign wealth funds.
Nevertheless, in all cases — even in those countries — various forms of taxes or indirect fees are usually imposed, such as corporate taxes, value-added tax and kinds of sustain to their financial and economic policies.
This is what has prompted the Omani government today to consider imposing an income tax on individuals with substantial wealth, starting from the beginning of 2028, after the issue was raised by the relevant authorities. Accordingly, the government’s move to impose income tax on citizens and expatriates with high monthly incomes has become a necessity to keep pace with citizens’ aspirations and to provide more services and projects for them across various government institutions and the private sector.
If people were to stop paying taxes on a large scale, governments could face difficulties at both institutional and individual levels resulting in a significant shortfall in revenues, deterioration in public services and budget deficits, not to mention rising public debt.
For several years, the Omani government has imposed an income tax on companies at a rate of 15% of their annual profits. However, a new law was issued last year under Royal Decree No 56/2025 to implement an income tax on individuals starting from January 1, 2028. This will apply to those whose annual income exceeds RO 42,000 (approximately $109,000), who will be subject to a tax rate of 5% on taxable income. The tax system will take into account deductions and exemptions for certain items such as housing costs, housing loans, health and education expenses, insurance, amounts paid for zakat, as well as donations and some other types of expenditures.
According to many analyses, this change will target a small segment of Omani society, perhaps up to 1% of the total population, while about 99% will not be affected by the individual income tax.
The purpose of imposing income tax is to diversification of public revenue sources and the reduction of dependence on oil revenues, within the framework of Oman Vision 2040 for economic development. This upcoming tax will help establish a more comprehensive tax system and greater fiscal sustainability in the country.
In general, the individual income tax will have some negative impact, but it will not necessarily lead to a decline in foreign investment for several reasons and considerations. The foreign investors are usually more concerned with corporate tax laws, which remain at around 15%. At the same time, Oman continues to offer incentives to attract foreign investment, grants 100% foreign ownership in many sectors, provides various facilitation measures, grants customs exemptions for certain equipment and machinery, maintains freedom of profit repatriation and offers investment guarantees.
This matter requires further awareness-raising to avoid concern among some investors who may view this change unrealistically and to eliminate any administrative burdens and to operate in accordance with standards of governance, transparency, digitisation.