Published: May 03, 2021
Oman introduced a 5 per cent VAT on most goods and services from April 16 2021, more than three years later than the UAE and Saudi Arabia and more than two years later than Bahrain, although they are ahead of Qatar and Kuwait which have yet to introduce the tax. The number of food-related exempt items was raised from 93 to 488. Also exempt are financial services, medical care and equipment, education, and real estate transactions, rents, local and international transport services, and crude oil, its derivatives and natural gas.
The authorities estimate that the VAT will raise RO 400mn ($1bn) per year. This, together with higher oil prices than we expected at the start of the year should see revenue exceed RO 10.4bn in 2021, higher than the budgeted RO 8.6bn. However, we expect spending to exceed the budget as well, and we have pencilled in RO 12bn in total expenditure. We thus estimate a budget deficit of RO 1.6bn or -5.4 per cent of GDP, a significant improvement on last year’s -17.1% per cent deficit.
Bloomberg data shows a further RO 1.6bn in debt falling due this year, bringing Oman’s total annual financing requirement to RO 3.2bn ($8.3bn). Oman sold $3.25bn in international bonds in January, leaving around $5bn still to be financed. This will likely be through a mix of domestic borrowing and drawdown of reserves.