Oman hikes taxes on petrochemical companies

Sunday 12/06/2016
Mohammed bin Hamad al-Rumhy, Oman’s minister of Oil and Gas, arrives at an oil producers’ meeting in Doha, last April.

Muscat - Oman will significantly increase taxes on petro­chemical companies to tackle its budget deficit, the latest Gulf Coop­eration Council (GCC) country to adjust to harsher economic condi­tions brought on by low oil prices.

Both the sultanate’s Consultative Assembly and the Council of State endorsed a proposal that would result in a significant tax hike on the petrochemical industry, non-oil natural resources and liquefied natural gas (LNG) companies. The legislation, which needs to be ap­proved by Sultan Qaboos bin Said Al Said, will lead to petrochemical industry and non-oil natural re­sources export taxes rise from 12% to 35%. Taxes on LNG firms will see a spike from 15% to 55%.

Additionally, a corporate tax increase will increase rates from 12% to 15%, which, according to as­sembly member Tawfiq al-Lawati, could bring in as much as $650 mil­lion annually.

Oman’s oil resources are not as big as other GCC members, such as Saudi Arabia and the United Arab Emirates. According to financial intelligence firm FocusEconomic, Oman has reached its oil produc­tion capacity, while the Organisa­tion of the Petroleum Exporting Countries (OPEC) continues to struggle to agree on production level.

Oman in 2015 established a re­cord, producing 1 million barrels per day, which, along with an in­vigorated tourism sector, helped boost the economy. However, the sharp fall in oil prices severely af­fected government revenue.

“Against this backdrop, the gov­ernment announced spending cuts at the beginning of the year and is expected to tap international bond markets and issue its first inter­national bond in two decades as a necessary step towards shoring up its finances,” FocusEconomic said in a report.

The International Monetary Fund (IMF), after an official visit to the sultanate, said “authorities have taken bold measures to limit the impact of the fall in oil prices on the fiscal deficit, including cut­ting spending on wages and ben­efits, subsidies, defence, and capi­tal investment by civil ministries. These measures are projected to reduce expenditures in 2016 by $4.5 billion; however, these sav­ings will be largely offset by the projected drop in hydrocarbon rev­enues, resulting in a deficit broadly unchanged at 17.1% of (gross do­mestic product).”

The sustained effects of these measures, the IMF said, combined with the planned increase in cor­porate income tax from 2017 and the introduction of a value-added tax in 2018, would narrow the fis­cal deficit over the medium term.

The IMF said the state of oil prices had underscored the need to accelerate economic diversifi­cation and increase the role of the private sector. Enhancing the busi­ness environment, improving gov­ernment efficiency and passage of the Foreign Investment Law would facilitate increased private sector investment, it said.

Raising the quality of education would enhance Omanis’ employ­ment opportunities in the private sector and progress in developing the small and medium-sized en­terprise sector could help generate jobs and increase non-hydrocar­bon exports.

Oman’s ninth five-year develop­ment plan (2016-20) set a goal of diversifying the sultanate’s econ­omy, according to Intisar Bint Ab­dullah al-Wahibiah, director-gen­eral of developmental planning at the Supreme Council for Planning.

“The national development plan, taking stock of the achievements of previous plans, aimed to lay the ground for a strategy for economic diversification through maximis­ing benefit from the five promising sectors of manufacturing industry, transport, logistic services, tour­ism, fishing and mining,” she said.

All members of the GCC are in­troducing economic reforms, with diversification as their main goal. As a consequence, Gulf Arab states have curtailed spending on con­struction projects and some have reduced energy subsidies to limit budget deficits caused by low oil prices.