Wednesday, October 27, 2021 | Rabi' al-awwal 20, 1443 H
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Cost cuts, taxes to shore up revenues

The government is committed to further recognizing efficiencies in 2021 by reducing expenditures and pursuing to increase non-oil revenues.

Accordingly the government plans to put expenditures on a sustainable path through prioritisation, increased efficiency and larger involvement of the private sector in line with “private sector and global investment” priority envisaged in Vision 2040.

“Cost optimization and reductions do not mean across-the-broad cuts, but they are rather rationalized in order to ensure the least disruption to government operations”, points out Oman’s Medium-Term Fiscal Plan 2020-2024.

Current, or operational, expenditures by civil, security and defence agencies account for the majority of government expenditures currently.

The government restructuring undertaken in August 2020, points out the report, “is just one of the many efforts under way to increase operational efficiency, unlock synergies and realize real savings on a structural basis”.

The Medium-Term Fiscal Plan 2020-2024 has been developed to reduce the primary and overall fiscal deficits as a percentage of GDP in the medium-term to sustainable levels in the mid-term period.

As Oman’s infrastructure has already begun to meet demand requirements, focus will now shift towards maintaining critical infrastructure and prioritising new projects that are in-line with the country’s development objectives.

This presents cost saving opportunities for the government and the ability for the private sector to play a larger role in the provision of competitive goods.

The fiscal plan report points out that salaries and wages are the single most significant cost currently in the state budget, accounting for more than 60 per cent of total operational expenditures for the government entities.

“Oman has undertaken several reforms over the past five years to contain the growth of the public wage bill — including hiring freeze except for critical public services such as health and education. Work is being undertaken to introduce individual and entity performance management systems and linking this system to the wage bill”, the report reveals.

The Medium-Term Fiscal Plan stresses on the need to strengthen the Sultanate’s revenue-raising framework by decreasing its reliance on hydrocarbon revenues. The initiatives related to increasing non-oil revenues will have an impact of almost RO 1.4 billion.The plan targets government revenues of RO 8.6 billion in 2020; RO 9.28 billion in 2021; RO 10.21 billion in 2022; RO 11.53 billion in 2023 and RO 12.095 billion in 2024.

The targeted expenditure during the four years are: RO 12.66 billion in 2020; RO 12.482 billion in 2021; RO 12.798 billion in 2022; RO 12.639 billion in 2023; and RO 12.632 billion in 2024. The deficit will move from 15.8 per cent in 2020 to 1.7 per cent in 2024.

By implementing financial initiatives and policies of this plan, the fiscal policy seeks to avoid making deficits and relegating in its credit ratings. In the meantime, it will work to achieve safe and attractive investment grades.

Currently, the government is evaluating the tax and how it can best be implemented. It is currently engaged in strengthening taxation administration and collection efficiency to ensure that the corporates are adequately addressing their tax obligations under the law.

The use of personal income tax on the high earning group is another tool to diversify governments’ revenues.

The introduction of VAT will serve as the foundation for the Sultanate’s revenue raising framework by introducing a broad-based indirect tax.

The government is also redesigning the subsidy system with a view to reallocating it to the vulnerable and people who deserve it by gradually increasing the electricity and water tariffs and ensuring that support is provided for vulnerable segments of the population.




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