Many brokers and economic analysts expect that the decision to suspend the withholding tax on dividends and interest will have a positive impact in terms of increasing the volume of daily trading on the Muscat Securities Market, as well as attracting more foreign investment in the upcoming period.
They believe this decision has come at the right time, as the corporate trading volume is currently low, compared with the large dividend yield of shareholders in 2018 at approximately 10 per cent in some cases. Current trading values do not reflect the size of the economy or the total market value of listed equities.
This decision, albeit belated, will result in a positive impact and boost confidence and market sentiment. This is where the role of funds comes in spurring buying and selling operations and winning the confidence of both domestic and foreign investors.
The suspension will be valid for a period of three years starting from May 6, 2019, extendable for further periods. This move will undoubtedly create the right environment and help attract more foreign investment to develop the national economy and achieve national goals.
The decision also reflects the Sultanate’s efforts to improve the business environment and open up the economy, which will enable the private sector to play a larger role in economic development programmes.
Furthermore, the decision is an advanced step in offering more incentives and additional facilities to attract further direct and indirect investments sought by the country in line with the Royal Directives of His Majesty the Sultan to ease investment inflows into the country.
The 10 per cent tax scheme imposed on foreigners who are not engaged in activities through a stable establishment in the Sultanate has had negative effects on trading on the Muscat Securities Market.
This prompted the relevant stakeholders in these sectors to demand reconsideration of the decision and freezing it for a certain period of time. Revenues earned by the State from the tax have been modest, but at the same time, were having an adverse impact on investors and investments. Indeed, the negative impact has been thousand fold worse that what the government would have earned from this tax.
Moreover, small Omani investors suffered heavy losses from the daily decline in stock prices and volume.
Decisions enforced worldwide may not be necessarily suitable domestically due to the different laws and conditions and financial strength of investors, especially as the region does not impose such tax on investment profits.
This had a negative impact on the psychology of investors, who became reluctant to enter the market, especially as the decision coincided with the decline in market trading as a result of the decline in global oil prices on one hand, and the increased risk of investment in the region on the other hand.
The decision to levy taxes on the profits of foreign shareholders had made MSM less attractive especially at a time when the Omani economy is in need of foreign investment.
This had prompted some companies to modify their dividend policies by replacing cash dividends with shares to avoid the income tax, which put pressure on traded share prices causing them to nosedive.
Furthermore, the decision saw increased sales by foreign investors who transferred their wealth to more attractive markets and areas of investment in terms of growth, profitability and tax rates, leading to the decline of the MSM Index as well as purchase and price levels.
This decision should be linked to reducing the cost of other things associated with companies whose shares are traded on the market.
These fees and taxes have a large annual cost to the financial situation of companies, which requires reconsideration of all these issues, and there should be a (comprehensive package) of exemptions. Omani companies and institutions had been affected by the decision to impose a tax rate of 10 per cent.
Today, the market needs to have large companies with high capital, where there is large liquidity that can attract investors.