Omani authorities are carrying out sweeping reforms of the country’s tax structure. The revised system ends discriminatory practices of applying higher rates to foreign firms operating in the country.
Llocal and foreign firms are to pay a fixed tax rate of 12 per cent with an initial exemption of nearly $78,000 (Dh286,884). The existing tax system subjects foreign firms of up to 30 per cent tax, depending on the income bracket.
The revised regime takes effect from the start of 2010. The transitional period is a welcome phase, as it provides firms the opportunity to adapt to the new system.
Nevertheless, firms belonging to Gulf Co-operation Council (GCC) countries are exempt from taxation. Oman is a member of GCC agreements, including both the customs union and common market.
Implemented in 2008, the common market allows for free movement of products within the six-nation bloc. However, the country opted not to join the GCC monetary union, which is planned for 2010.
The new tax rate compares favourably with rates applied in other GCC states that apply any form of taxation on corporate income.
The rate in Kuwait is fixed at 15 per cent. In Qatar, taxation could reach as high as 35 per cent. Still, not all GCC countries, including Bahrain, apply taxation on net profits of firms operating in their territories. However, Bahrain applies taxes on foreign firms operating in the country’s hydrocarbons sector.
Undoubtedly, imposition of tax is a regular practice across the world. In fact, suspicion often falls on countries serving as tax havens and providing sanctuary for evaders. The Organisation for Economic Cooperation and Development (OECD) has developed a list of 41 countries regarded as tax havens. However, 38 of these countries, including Bahrain have promised OECD to carry out specific steps to overcome the shortcomings and lack of transparency.
According to World Investment Report 2008, issued by the United Nations Conference on Trade and Development (Unctad), Oman received nearly $2.4 billion FDI in 2007. In comparison, Saudi Arabia attracted a hefty $24.3 billion in the same period, the highest amount among countries in Western Asia. On the other hand, Unctad’s statistics show Kuwait enticing a mere $123 million of inward FDI, the smallest amount among GCC and Western Asian nations.
Oman badly needs FDI to help create jobs that meet expectations of nationals seeking employment with regard to pay and working conditions. According to available data, the jobless rate stands at 15 per cent among Omani nationals actively seeking employment.