The Royal Decree is a significant development in preparation for the introduction of VAT in Oman. Businesses with activities in Oman will need to consider the implications of the introduction of VAT on their transactions and ensure that they are ready to comply with the new VAT requirements by April 2021. Given the relatively short implementation timeline and the fact that the Executive Regulations may not be issued until the end of 2020, it is crucial that businesses start to plan for implementation as soon as possible.
What is Value Added Tax (VAT)?
Value Added Tax (VAT), also known as Goods and Services Tax (GST), is a consumption tax that is assessed on products at each stage of the production process – from labor and raw materials to the sale of the final product. The VAT is assessed incrementally at each stage of the production process, where value is added. However, it is ultimately passed on to the final retail consumer.
VAT is applied at a basic rate of five percent, to be imposed on goods and services in the Sultanate. It will also be imposed on goods imported into the Sultanate, with specific exemptions provided in the relevant laws and regulations.
This is considered an indirect tax, with the amount taxed to be borne by the final consumer, while taxable businesses must collect and calculate this tax and hand it over to the relevant authorities.
What does Value Added Tax mean for consumers?
Registered establishments are to impose this tax on the taxable goods and services they provide. Therefore, the tax will be borne by the consumer who receives these goods or services, and the basic tax rate of five percent will be applied to most goods and services. A wide list of goods and services that are not included in the tax will be specified, in accordance with the law and regulation.
Calculating Value Added Tax (VAT)
To calculate the amount of value added tax that must be paid at each stage, take the VAT amount at the latest stage of production and subtract the VAT that’s already been paid. It prevents double taxation and ensures that buyers at each stage get reimbursed for the VAT they’ve previously paid.
Here is how VAT is calculated. If the price of a product you want to buy is OMR5 without tax, then the Value Added Tax that will be charged is equal to 250 baisas (5 into 5% = 0.250 OMR). This means that the final price of the product is OMR 5.250 with tax.
What items are exempt from taxation under Value Added Tax?
Although the information currently available is limited, the Oman Tax Authority has begun to issue some information on the VAT Law through its social media channels, including that the following categories will not be subject to VAT at the standard rate of 5%:
- Basic food commodities.
- Medical care services and associated goods and services.
- Education services and associated goods and services.
- Requirements for people with disabilities.
- Supplies for charities.
- Financial services.
- Undeveloped lands (vacant lands).
- Resale of residential properties.
- Passenger transport services.
- Renting out real estate for residential purposes.
- Supply of medicines and medical equipment
- Supply of investment gold, silver and platinum.
- Supplies of international transport and interchange of goods or passengers, and the supply of associated services. The supply of marine, air and land transportation means intended for the transport of goods and passengers for commercial purposes, and the supply of goods and services associated with transport.
- Supply of rescue and aid aircraft and vessels.
- Supply of crude oil, petroleum derivatives and natural gas.
How will it be ensured that the tax is not used as an excuse to raise prices?
The Value Added Tax will be applied according to regulations and controls through which businesses must clarify the amount of value-added tax the consumer will bear for each good and service at the outlet, and provide the necessary information that helps the consumer to choose the appropriate goods and services. This tax rate is also recorded in the establishment’s invoice according to the regulations that control VAT in the country.
Will VAT affect visitors and tourists coming to the Sultanate?
Visitors and tourists will be responsible for VAT on their taxable purchases, and will be entitled to a refund of the tax according to certain conditions that will be specified in the regulations, including the type of goods eligible for refunds, and the minimum refundable value for them.