There is never a great time to introduce valued added tax (VAT), but Omanis and those living in the Sultanate, long opposed to its implementation, may see it as the more palatable option as the country battles against the dual impacts of the Covid-19 pandemic and the crippling effects of the slump in international oil prices.
Widely considered to be among the Gulf’s most vulnerable economies, Oman, which is the biggest Arab oil exporter outside OPEC, faces one of the widest fiscal deficits across the region in 2020, with the International Monetary Fund (IMF) estimating it will reach around 16 percent of GDP.
The country’s sovereign rating was cut for a second time this year at the end of June by Moody’s Investors Service, which forecast a lower crude price environment will likely slash the Gulf nation’s oil revenue.
The rating company downgraded the sovereign a notch lower to Ba3 – three levels into its non-investment grade scale, and changed its outlook to negative, according to a statement Tuesday. In March, Moody’s put Oman on review for the downgrade, saying the country’s low fiscal strength will likely place pressure on its finances.
Moody’s has revised its Brent crude price assumptions for 2020 and 2021 to an average of $35 per barrel and $45 respectively.
Since the start of the year, Oman’s Ministry of Finance has issued several circulars and various directives to government units to curtail spending – in April, the MoF announced a cut of OMR500 million ($1.3bn) in the state budget.
Oman also cut the salaries of new government employees.
From October 1, the country is to introduce a tax on sweetened drinks, following up on the 100 percent tax implemented on tobacco, alcohol, pork meat, and energy drinks in June last year, which was expected to generate about OR100m ($260m) annually, Saleh bin Said Masan, head of the economic and financial committee at the Shura Council had previously said. An excise tax was also introduced at the same time.