Less than 10pc of registered firms file tax returns

By Conrad Prabhu — MUSCAT: MARCH 4 - The amended Income Tax Law, which was published in the Official Gazette last week, invests Oman’s tax authorities with powers to apply “anti-avoidance” measures against businesses that may seek to manipulate their status in order to pay a lower rate of tax or evade taxes altogether. Less than 10 per cent of the estimated 300,000 businesses registered with the Oman’s Ministry of Commerce and Industry currently file their tax returns, statistics reveal.

Under the revised law, small firms are liable to pay tax at a very low rate of 3 per cent of their taxable income, provided they fall in the category of microbusinesses meeting certain specified criteria. All other businesses are required to pay tax at the revised rate of 15 per cent, up from 12 per cent under the previous version of the statute, on their entire taxable income. This follows the scrapping of the tax-free threshold of RO 30,000 that was previously available to tax payers who engage in activities within the Sultanate through an establishment, Omani company or permanent establishment of a foreign person.

The amended law applies a new lower tax rate of 3 per cent to local businesses which, among other criteria, carry out specified types of commercial activities in the Sultanate, according to Ashok Hariharan, Partner and Head of Tax for KPMG Lower Gulf. These microbusinesses are essentially Omani sole proprietorships or Omani firms taking the form of a partnership or a limited liability company (LLC) having a registered capital of no more than RO 50,000 at the start of a tax year, he said. Their gross income does not exceed RO 100,000 for any tax year, while the average number of staff on their rolls does not exceed 15 employees during the tax year.

Falling into this category, the tax expert explained, are small firms carrying out any commercial, industrial, vocational or service activity other than air and sea transport, banking, insurance and financial institution turn activity, extraction of natural resources, public utility concession activity and any other activities which the Minister Responsible for Financal Affairs may decide following approval of the Council of Ministers. Such tax payers, Hariharan said, are required to pay tax at 3 per cent of the taxable income declared. “They are not required to provide audited financial statements; instead they are required to complete a simple manual declaration supported by an income statement, prepared on a cash basis of accounting. This simple return, which is a final return, is required to be submitted within three months of the end of the tax year.”

This measure, he noted, is aimed at bringing within the tax net a large number of tax payers who currently do not comply with the provisions of the law on the basis that they do not earn taxable income in excess of RO 30,000.

“In order to ensure that tax payers do not misuse this provision of lower rate of tax by creating multiple entities which meet the above criteria, the tax authority is empowered to use the anti-avoidance provisions to stop the abuse,” said Hariharan.

The amended Income Tax Law also prescribes stiffer penalties and punishments for suspected tax evaders.  The maximum penalty for failure to file tax returns within the stipulated deadlines has been doubled to RO 2,000, up from RO 1,000 previously.  Likewise, the maximum penalty for failing to submit information and documents requested by the tax authority, or failing to attend hearings, has also been doubled to RO 5,000, up from RO 2,500.

Significantly, for the first time, a minimum prison term has been prescribed for certain tax related offences.  “Intentional refusal by the Principal Officer to submit returns disclosing the actual income of the tax payer or intentional abetment by the tax payer to submit returns or other documents showing an incorrect tax liability  or intentional destruction or concealment of records and documents requested by the tax authority can result in an imprisonment ranging from 6 months to 3 years and/or a fine ranging from RO 5,000 to RO 50,000,” Hariharan added.