Zero-VAT rate, exemptions to ease burden on ‘common man’

MUSCAT: Oman’s decision to exempt a number of basic goods and services from the purview of Value Added Tax (VAT), slated to come into force with effect from April 2021, has been hailed as a reflection of the government’s commitment to minimising the financial impact of the new levy on the general population of the Sultanate.

Basic foodstuff, healthcare, medicines, education and local passenger transportation are among an array of goods and services either zero-rated for VAT or made entirely exempt from the application of the new tax. They are among 16 different categories of goods, services and activities that will not attract the new five per cent levy announced vide Royal Decree 121/2020 promulgated by His Majesty Sultan Haitham bin Tariq on Monday.

Alkesh Joshi

“VAT implementation in the Sultanate has been carefully conceived to mitigate any cost burden on the common man,” said Alkesh Joshi (pictured), Partner, Oman Tax Leader, MENA Energy Tax Leader at EY. “As much of any household’s expenditure revolves primarily around food, healthcare and education, the impact of VAT will likely be marginal for a common man — which is a welcome gesture from the government.”

In comments to the Observer, the tax expert underlined the significance of the new VAT levy for Oman’s fiscal situation, which like other member states of the Gulf Cooperation Council (GCC), has been impacted by the effects of the coronavirus pandemic, as well as low oil prices.

“VAT has proven to be an important and effective fiscal tool deployed by the governments in the GCC to balance their beleaguered budgets. Attesting to this fact is Saudi Arabia’s recent decision to ramp up the rate of VAT from 5 per cent to 15 per cent with effect from July 1, 2020,” said Joshi.

He further added: “With governments, including Oman, facing mounting budget deficits, the only choice they have is to aggressively diversify their economies or create new revenue streams – options that will take some time before they produce results.  On the flipside, there is the risk of attracting negative ratings from international ratings agencies if governments are seen to be not doing enough to plug their deficits.”

Monday’s landmark announcement by the Omani government is a “step in the right direction”, said Joshi.  “Tax reform of this magnitude can send a strong message to the international community that the government is expanding its revenue base – a move that will send a positive signal to ratings agencies, which will be encouraged to review their current ratings for Oman.”

For the first time, authorities have also provided greater clarity on the range of goods and services that will be either zero-rated for VAT or exempt altogether, said the expert. The following categories are zero-rated for VAT:  Supply of food items determined by a decision of the Chairman; Supply of medicines and medical equipment determined by a decision of the Chairman; Supply of investment grade gold, silver and platinum; Supply of international and interconnection transport of goods or passengers, and the supply of related goods and services; Supply of means of transport by sea, air and land, adapted for the transport of goods and passengers for commercial purposes and the supply of related goods and services; Supply of rescue aircraft and ships; Supply of oil and gas derivatives; and Export of goods and services outside the GCC region including those that would be exempt if supplied domestically.

Exempt from VAT are: Certain financial services; Healthcare services and related goods and services; Education services and related goods and services; Supply of undeveloped land (bare land); Resale of residential real estate; Local passenger transport; Rental of real estate for residential purposes; and Certain supplies made by charitable organisations.