Oman introduces personal income tax: Are other GCC nations next?

The Oman News Agency reported that Oman's Shura Council has recently forwarded the draft law on personal income tax to the State Council for final legislative approval. Although there were discussions about introducing it at the start of 2024, the implementation has been delayed and is now expected to take effect in 2025.

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According to the 2022 draft, the proposed tax aims at high-income earners, targeting citizens with a net global income over $1 million and foreign nationals with Oman-sourced income exceeding $100,000.

Based on the draft, the anticipated tax rates for foreign nationals are expected to range from 5 percent to 9 percent, while Omanis above the specified threshold will be taxed at a flat rate of 5 percent.

However, the specific rates and additional details are still being finalized.

Why is Oman interested in introducing tax income?

The possible implementation of personal income tax aligns with Oman’s Vision 2040, which seeks to diversify the country's revenue sources and lessen its reliance on oil income.

The government's intention to impose income tax on high earners was detailed in a bond prospectus released by the finance ministry in 2020, when Oman secured $2 billion in external financing.

In the prospectus, the government stated its goal to reduce dependence on hydrocarbon revenue by implementing a 5 percent VAT, improving returns from state-owned enterprises, and introducing income tax for high earners.

Income tax is also used by some governments as an effective mechanism to generate revenue that covers internal expenditures.

Will GCC countries follow suit?

Sico Investment Bank noted in a report that Oman's advancement with a personal income tax framework could encourage other GCC countries to adopt similar tax reforms.

However, some GCC countries like the UAE and Saudi Arabia have made it clear that they currently have no intentions to introduce personal income tax, as they aim to attract more international businesses and skilled professionals from abroad.

In recent similar steps, the UAE, renowned for attracting global wealth, introduced a federal corporate tax on business profits for the first time last year, set at a low 9 percent to preserve its business-friendly reputation. Saudi Arabia, on the other hand, imposed a 20 percent corporate income tax, while Qatar's rate stands at 10 percent.

Additionally, the UAE, Saudi Arabia, Oman, and Bahrain have all implemented a 5 percent Value Added Tax on goods and services. During the Covid-19 pandemic, Saudi Arabia raised its VAT rate to 15 percent in 2020 to address revenue shortfalls. Meanwhile, Kuwait and Qatar have not yet adopted a VAT system.

While opinions differ on whether other countries will adopt similar income tax laws, only time will reveal the outcome. Meanwhile, the GCC region will closely monitor the effects of Oman's new tax legislation once it is implemented.