Oman, Diverging From Gulf Practice, Plans Income Tax on the Wealthy

The coast of Sur, Oman (Wikipedia)

As part of an initiative designed to curb ballooning deficits caused by historically low oil prices and the COVID-19 pandemic, Oman will become the first Gulf Cooperation Council (GCC) state to implement an income tax on wealthy individuals, starting in 2022. 

In the past, countries in the region have forsaken the implementation of an income tax in efforts to attract companies, but experts such as David B. Roberts, an assistant professor at King’s College London who studies the Gulf, believe that this model has severe limitations. Roberts argues that “some kind of income taxes eventually” will have to materialize within the region’s monarchies if they hope to remain financially stable. 

Monica Malik, chief economist at Abu Dhabi Commercial Bank, agrees, arguing that Oman’s initiative will “be a significant move and closely watched by other GCC countries” who may have to implement similar reforms in the future. 

Oman’s Ministry of Finance hopes to use the new revenues to lower Oman’s deficit from 19 percent of GDP in 2020 to 1.7 percent by 2024. While some experts, such as Ziad Daoud, a chief emerging markets economist at Bloomberg Economics, hold that this goal “is ambitious to the point of unrealism,” most concur that the tax remains the only path forward for Oman to reduce its deficit. 

Though Oman’s reform does not specify which income brackets will face taxation, it does state that revenue from the income tax will fund social programs. 

The initiative would also gradually reduce state subsidies to industries such as electricity and water before removing them altogether in 2025, and would aim to boost non-oil revenues from 28 percent this year to 35 percent by 2024. Similar policies have become increasingly necessary across the Arab world as high oil prices that once funded state subsidies begin to dramatically dwindle.

“Any signs of sustained progress with the reform program will be very positive,” said Malik. Indeed, the successful implementation of an income tax in Oman could have very positive implications for the entire region, which has struggled to recover from COVID-19 and low oil prices, and must find a new revenue source.