What is this VAT, a frequently used term one hears nowadays? It is nothing but a Value Added Tax applicable on certain goods and services.
The Oman Government had announced the approval of Royal Decree No. 121/2020 dated 12 October 2020, publicising the long-awaited Value Added Tax (VAT) Law which was finally implemented on April 16, 2021. This is a significant development in the fiscal reforms of Oman.
The Law follows the framework of the Gulf Cooperation Council (GCC) VAT Agreement – similar, but not exactly the same as what has been implemented in Bahrain, the Kingdom of Saudi Arabia (KSA) and United Arab Emirates (UAE).
The scope of VAT is very wide and is applicable on most goods and services. It would also be applicable on importation of goods and services into Oman. It is applied at the standard rate of 5 per cent on most goods and services, with exceptions for essential food items, medical care, education and financial services.
Minimal impact of VAT
Oman’s Tax Authority chairman Saud Nassir al Shukaili in a statement to Oman News Agency (ONA), had explained that the application of VAT was made in accordance with exhaustive studies undertaken over a long period of time. The studies covered the economic and social impacts of this tax in the sultanate. Another study showed the impact of the VAT on consumers in Oman will be minimal.
According to Oman Tax Authority, 94 food items are exempted from VAT including milk, meat, fish, poultry, fresh eggs, vegetables and fruits, coffee and tea, olive oil, sugar, nutritional products for children, bread, bottled drinking water and salt. Oman has applied a zero-rate to basic commodities and exempted some domains like education, healthcare and financial services from this tax bracket. So, don’t be bothered of this new tax in everyday life, rather take a look at your grocery bills and see where it has been added.
How is VAT calculated?
To calculate VAT, you need to know the ‘taxable value’ on which the 5% VAT can be calculated. The Oman VAT law states that the taxable value will be the value of consideration before VAT but includes all additional expenses/costs charged by the supplier, any fees and other taxes. In other words, the taxable value will be the net value just before calculating VAT.
Let’s try to understand it very simply
If you buy a television costing RO100, you will be charged VAT at the rate of 5%. So, your invoice will reflect 100 + 5 (5% of 100) = RO105.
Also, if you buy a television costing RO100 and the store offers a discount of RO10, you will be charged VAT of 5% on only RO90 (excluding the discount). So your invoice will reflect 90 + 4.5 (5% of 90) = RO94.5.
Similarly, if you buy home furniture worth RO10,000 and the store levies a transportation/packaging charge of RO100, you will have to pay VAT on the total value of RO10,100. So, your invoice will show a total of 10,100 + 505 (5% of 10,100) = RO10,605. Now that you’ve understood what’s VAT, it will be easier to look for entries in your invoices and verify that it has been levied right.
Items exempt from VAT in Oman
1- Basic food commodities
2- Medical care services and related goods and services
3- Education and related goods and services
4- Financial services
5- Undeveloped or vacant lands
6- Resale of residential properties
7- Transport services for passengers
8- Renting real estate for residential purposes
9- Supply of medicines and medical equipment
10- Supply of investment gold, silver, and platinum
11- Supplies of international transport and interchange of goods or passengers and the supply of related services
12- Supply of rescue and aid aircraft and vessels
13- Supply of crude oil, petroleum products, and natural gas
14- Supply means through sea, air, and land transport for the transport of goods and passengers for commercial purposes and the supply of goods and services related to transport.
15- Charities and essential supplies for people with disabilities.