Readiness is Key

VAT Introduction 2018-2019

As Oman and the rest of the GCC roll out VAT implementation, the costs are best minimized and benefits maximized by diligent preparation.

With the GCC countries agreeing to introduce a 5% VAT in 2018, the Ministry of Finance announced that Oman is considering the introduction of a similar one by the end of 2018 or early 2019. Once implemented, Oman is expected to receive an extra OMR300 million (USD776 million) every year in tax revenues.

All six members of the GCC recently confirmed the introduction of a formal VAT system through the signing of the VAT Framework Treaty. Although the treaty will act as the Sultanate’s basis for domestic VAT legislation, it will allow the country to choose a different matrix of VAT applications, with some decisions for goods and services declared exempt or zero-rated made at the national level. The distinction between an exemption and zero-rating is important; although in both cases VAT must not be accounted on the supply, a given supplier making exempt supplies is generally not allowed to recover input VAT, while recovering input VAT on zero-rated supplies is allowed.
While some goods and services are declared exempt or zero-rated, some must be zero-rated or exempt across the GCC. Some must-zero-rate supplies include medicine and medical equipment, cross-border goods and passenger transportation services, goods exported outside of GCC territory, and certain cross-border supplies of services. Also, the “must exempt” category includes financial services (with some flexibility to tax), and imports if the goods are exempt from VAT in the exporting member state.
According to Deloitte’s February 2017 report, the introduction of VAT is expected to have an impact on most industries, but is expected to highly affect consumer and industrial products, technology, media and communications, financial services, and real estate. Nevertheless, the agreed 5% VAT is significantly lower than the OECD average of approximately 19%.
Country Manager of Pak Oman, Noaman Abdul Majid, echoed Deloitte’s positive outlook. He predicts VAT will not drive away investors, noting, “Businessmen in Pakistan have been dealing with VAT for a long time, and they are doing quite well. The Pakistani stock market has boomed, and it is driven by profitability.” Majid did mention, however, that the private sector would have to explore new industries and increase operational efficiencies.
To best mitigate the initial negative impact, it is recommended that businesses prepare for VAT implementation. Failing to maintain the status quo over tax implementation will cause operational disruptions, increase logistics difficulties, raise invoices, and adversely affect countless other procedures. But, if preparation is done correctly, business-as-usual under VAT could create substantial revenues.

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