As Oman gears up for VAT implementation, organisations are facing a skills shortage of qualified tax professionals, according to global consultants PwC Middle East.
The Sultanate – together with the other five states of the Gulf Cooperation Council (GCC) – signed the Common VAT Agreement in June of 2016 where it was decided that a VAT system at a rate of 5 percent would be introduced in 2018. Oman later delayed its implementation to 2019 and that was delayed further to 2021 amid sluggish economic performance 12 months ago.
However, in a recent poll run by PwC Middle East, 26 percent of businesses in Oman cited the lack of VAT technical resources, staff and VAT awareness challenges as the main barrier to a successful implementation, with only 26 percent again also indicating they have fully completed the requirements needed to be ready for implementation.
Jeanine Daou, Partner, Indirect Tax Leader at PwC Middle East, told Arabian Business: “Whilst some businesses started their preparations early, following the release of the Oman VAT Law in October 2020, they were unable to finalise VAT treatments and make necessary systems changes until the release of the Executive Regulations (ERs), which were released in March 2021, nearly five months after the release of the Law.
“This has given businesses a month to assess the impact of the ERs on their transactions, and to implement and test these changes in underlying systems.”
A previous estimate from Scott Livermore, ICAEW economic advisor and chief economist at Oxford Economics, suggested that the introduction of a five percent levy could generate about OMR300m ($780m) for the Sultanate.
Both the UAE and Saudi Arabia introduced VAT on January 1, 2018, while Bahrain followed suit a year later. Qatar is expected to implement VAT in the third quarter of this year, while Kuwait will introduce the tax by 2022, according to a previous report by the International Monetary Fund (IMF).
Saudi Arabia the world’s largest crude exporter – tripled VAT to 15 percent in July last year as it endured the twin economic shocks from the spread of the coronavirus pandemic and oil market turmoil, although officials have since said that decision might be reviewed once the crisis is finally over.
Jeanine Daou, Partner, Indirect Tax Leader at PwC Middle East
Daou said Oman will be in a positive position to learn from the implementations of its neighbours.
“Businesses with operations in other GCC countries that have implemented VAT should be able to leverage the learnings and knowledge gained in those countries, allowing for local nuances in Oman,” she said.
However, she warned the funnelling of activity in the last few weeks before the VAT go-live date has put pressure on the VAT project teams in many businesses, including pressure on in-house and third-party IT resources, who are aiming to align and test underlying systems readiness.
She said: “In addition, many businesses have realised that the ERs themselves do not address all business scenarios, and much more practical guidance on transactions in specific sectors will hopefully be addressed in sector specific and wider general administrative guides.
“As more detailed and comprehensive guidance from the Tax Authority is eagerly awaited, some businesses have taken positions on potential VAT treatments based on their understanding of the published legislation and/or based on practices adopted in the wider GCC/international best practice.
“For organisations with limited knowledge and experience of VAT, this has the potential to cause additional challenges, and crucially, these positions may differ from those ultimately adopted by the Tax Authority, with potential compliance and penalty implications.
“But whilst systems and IT related challenges are key considerations for success, the ability of employees across all functions of the business to understand VAT and its implications is going to be crucial for the effective adoption for Omani business post 16 April.”
According to a report released from PwC earlier this week, the tripling of VAT in Saudi Arabia last year and the launch of VAT in Oman should see about $47 billion raised in 2021, nearly half of all GCC taxation.
To support businesses in implementing the nation’s new tax regime, PwC’s Academy, the talent and skills development business of PwC, has launched the Oman VAT Compliance Diploma.
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