Excise tax on beverages, tobacco to buoy Oman revenues in 2017

State Budget: Corporate tax revenues are projected to drop to around RO 400m in 2017, from RO 520m budgeted in 2016


Conrad Prabhu –
Jan 2: Omani government revenues are expected to be bolstered this year by the introduction of, among other things, excise tax on tobacco, alcohol, carbonated beverages and potentially even energy drinks, according to a leading Muscat-based tax consultant.
Ashok Hariharan (pictured), Partner and Head of Tax, KPMG Lower Gulf, said the new levy is part of a host of revenue-enhancing measures incorporated in the 2017 State Budget aimed at offsetting the steep fall in export earnings resulting from the decline in oil prices.
“The government is likely to benefit from introducing excise tax in 2017 in conjunction with the GCC countries,” said Hariharan. “Commodities like tobacco and alcohol are likely to be taxed at 100 per cent and soft drinks at 50 per cent based on announcements made by the Saudi government,” he added in remarks to the Observer.
Revenues from taxes and fees, according to the tax expert, are estimated to rise by around 7 per cent. However, corporate tax revenues are projected to drop to around RO 400 million in 2017, from RO 520 million budgeted in 2016, he noted.
“This reflects the fact that in 2016 the actual revenue collections from corporate income tax had significantly dropped to around RO 400 million, primarily on account of companies reporting lower profits and the tax rates remaining unchanged at 12 per cent,” Hariharan explained.
Furthermore, amendments anticipated in the corporate income tax law during 2017 will likely result in greater revenues only from 2018 when companies start paying taxes for the tax year 2017, Ashok pointed out, adding: “There is a significant increase in all other tax and fees revenues including in particular non-Omani labour licences and customs duties.”
Giving his take on the 2017 State Budget, Hariharan said it takes into account the reality of the global low oil price milieu. “One of the most striking features of the 2017 budget is the Government’s acceptance of the new reality in terms of low oil prices. The fact that within a year of the Ninth Five Year Plan being issued, which assumed a price of $55 per barrel for oil in 2017, the government has revised its estimate and gone ahead doing the budget for 2017 using $45 per barrel as price of oil, suggests that the government is wanting to be prudent in terms of managing its finances. This has resulted in the government estimates of oil and gas revenues being almost equal to the 2016 budget which was also based on $45 per barrel as the oil price.”  Hydrocarbon revenues realized in 2016 are projected at RO 5 billion in 2016, a decline of 18 per cent from the 2016 budget estimates. This is primarily because the realized price of oil during 2016 was around $39 per barrel as against the budgeted price of $45 per barrel, he said. Overall revenues are, however, RO 100 million more than 2016 budget primarily on account of the increase in non-oil and gas revenues, he noted.
Actual expenditure in 2016, while, 6 per cent higher than the budgeted expenditure of RO 11.9 billion, actually declined compared to 2015 actuals by 8 per cent, Hariharan said. Expenditure is hoped to fall to RO 11.7 billion in 2017, representing a decline of a further 8 per cent compared to the actual of 2016.
The budget deficit for 2017 is projected at RO 3 billion, compared to RO 5.3 billion expected to have been incurred in 2016, the tax executive said. This is a significant drop compared to 2016 and reflects the expected higher price of oil and gas compared to 2016 and a further containment of the expenditure by around 8 per cent. The deficit as in 2016 is expected to be predominantly financed out of external borrowings (84 per cent). Borrowings as a percentage of GDP is expected to go up to 29 per cent, he stated.
“This is again a new reality for Oman and many other governments in the region, and is sending a clear message that the government would need to accelerate steps to diversify its non-oil and gas revenues in order to manage its budgetary deficits well,” Hariharan added in conclusion.