Oman Budget 2018 highlights

Highlights of the 2018 budget
The recent recovery in oil prices has not changed the government’s resolve to continue with its prudent fiscal management, including controlling public and in particular current spending. It also realises that diversification away from oil has to be pursued vigorously with the help of the private sector investment to contain the budget deficit and the rising public debt.
In this backdrop, the budget has tried to maintain balance by cutting public expenditure without compromising on funding of key development projects. Given that the private sector is expected to play a pivotal role in capital formation, the focus of the government is not only to improve the investment climate and promote public private partnership but also to give significant support to the small and medium enterprises by allocating some of the government projects to this sector and to ensure the swift implementation of the National Program for Enhancing Economic Diversification (‘Tanfeedh’) initiatives.

Revenue
Oil and gas revenue represents
71 per cent of total government revenue
Oil and gas revenue is expected to increase by 9 per cent compared to the 2017 budget. The 2018 budget is based on a oil price of $50/bbl compared to $45/bbl used in the 2017 budget. The budgeted oil price of $50/bbl for 2018 corresponds to the average price actually realised during 2017. Revenue estimates also reflect reduced production pledged by the government in line with the Opec production agreement and anticipated production from the Khazzan-Makarem gas field.

Non-oil and gas revenue represents
29 per cent of total government revenue
Non-oil and gas revenue is projected to be RO2.7bn amounting to an increase of 5 per cent from the 2017 budgeted revenue. Corporate tax revenue is projected to increase by 25 per cent to RO500m in 2018 compared to RO400m budgeted in 2017. The increase is due to raise in corporate tax rate from 12 per cent to 15 per cent and abolition of the exemption limit of RO 30,000. Increase to the scope of withholding taxes is also expected to contribute in higher tax collections.
The substantial increase in corporate taxes is offset by a 23 per cent decrease projected in customs revenue to RO 286m in 2018 from RO 370m budgeted for 2017. Municipality fees on property rentals is anticipated to reduce by RO 12.8m i.e. by 17.8 per cent compared to 2017 budget which may imply slowdown in renting of real estates due to the overall economic downturn.
The government has also indicated its intention to introduce Excise taxes during 2018 on selective goods in line with the other Gulf Cooperation Council (GCC) countries. Saudi Arabia, UAE and Bahrain introduced Excise tax of 100 per cent on tobacco, and alcohol and 50 per cent on energy drinks. On the other hand, VAT implementation has been delayed to 2019 although Saudi Arabia and the UAE implemented VAT from 1 January 2018.
Income from government investments is projected to reduce by RO 40m.

Expenditure
Whilst the total expenditure is projected to increase by RO 800m to RO 12.5bn compared to the 2017 budget, this is infact 2 per cent lower than the actual projected spending of RO 12.7bn in 2017. The government has committed to limit the total public spending to not more than 40-45 per cent of the GDP.
Defence and security expenditure is marginally increased by 3 per cent. Expenditure on development projects is estimated at RO1.365bn, almost unchanged from the 2017 budget.
Allocations have been made for several infrastructure projects in Oman and development projects in Duqm. Expenditure on education, health, housing and social welfare is reported to be at 38 per cent of the total public spending and reflects continued increased allocation compared to previous years.
Interest on loans is projected to increase by 81 per cent to RO 480m in 2018 from RO 265m budgeted in 2017 which indicates increased debt servicing to manage the fiscal deficit.

Budget deficit is 10 per cent of GDP
The 2018 budget deficit is projected to be RO 3bn compared to an actual 2017 deficit of RO 3.5bn. The 2018 deficit is expected to be financed from borrowings (84 per cent) and reserves (16 per cent).
KEY DEVELOPMENTS

Tanfeedh
The Tanfeedh programme continues to be the key focus area on the manufacturing, logistics and tourism sectors being assigned priority during the first phase. An Implementation Support and Follow-up Unit (ISFU) was formed during 2017 to ensure the implementation of the initiatives on a timely basis. The government allocated RO 86.2m for implementing the initiatives/projects of Tanfeedh during 2017.

Privatisation
Six state owned enterprises are being planned for privatisation during 2018. PPP projects like Khazzan natural gas project ($ 16bn project operated by BP in partnership with Oman Oil Company Exploration and Production) and Duqm Refinery, (50:50 joint venture between Oman Oil Company and Kuwait Petroleum) are progressing well.
Private sector contribution to the implementation of investment projects was 60 per cent in 2017. The government plans to attract further private investment by improving the investment climate and enacting new PPP, foreign capital investment and bankruptcy laws. Projects selected within the Tanfeedh framework are proposed to be financed in partnership with the private sector.

Investments
A number of strategic projects are ongoing with an intent of the government not to cut development spending. Projects such as the new international airport, expressways, water networks, hospitals and renewable energy generation would continue to get government funding. Proposals to set up free zones in Buraimi, Musandam are under discussion.

Taxation
With the amendment to the tax legislation in February 2017, no significant amendments are anticipated to the corporate tax regime. It is expected that Executive Regulations to implement the recent amendments to the Tax Law may be issued.
Oman has recently joined the Base Erosion and Profit Shifting (BEPS) Inclusive Framework of OECD. In the GCC region, Saudi Arabia and Qatar are the other countries who have joined the BEPS Inclusive Framework. By joining the BEPS Inclusive Framework, Oman has committed to implement the four minimum standards of the BEPS Package. Furthermore, members of the Inclusive Framework agree to work together on an equal footing to develop further the BEPS measures, commit to participate in peer reviews on BEPS measures’ consistent implementation.
The European Union has put Oman in the grey list of non co-operative tax jurisdictions. As it is not black listed it would not face any sanctions. However, with proper implementation of BEPS measures, Oman should be able to get out of the grey list.

[Based on insights provided by KPMG]