Oman Daily Observer

‘2017 fiscal budget realistic and achievable’

- BUSINESS REPORTER MUSCAT, JAN 11

More than 100 CEOs, CFOs and other top corporate executives attended a seminar hosted by leading tax advisory services firm KPMG spotlighti­ng the 2017 State Budget yesterday.

KPMG’s analysis and insights on Oman’s 2017 budget included a comparison of the 2017 budget numbers with both the 9th five year plan, covering the period 2016 to 2020 (FYP9) announced last year and the preliminar­y fiscal results for 2016 . It also analysed the budgeted deficit, debt and the level of debt to GDP. A comparison of debt to GDP for other countries in the region and outside was also made.

Ashok Hariharan, Partner and Head of Tax for KPMG in the Lower Gulf, mentioned that the budget numbers reflect prudent fiscal management in line with the realities of a challengin­g and volatile oil market, as they are based on a conservati­ve oil price of USD 45/bbl and not the higher estimate of USD 55/bbl considered last year in the FYP9.

Despite the lower oil price compared to the FYP9, the budget deficit has been kept significan­tly lower than last year’s actual deficit by reducing non-essential expenditur­e, including defence and security and expenditur­e by ministries and government units. Developmen­t expenditur­e was maintained at the level budgeted for 2016 although 14 per cent lower than the FYP9 plan numbers.

Ashok highlighte­d that the GDP growth of 2 per cent budgeted for 2017 is achievable despite strong economic headwinds and shrinking government expenditur­e if the government expeditiou­sly implements its Tanfeedh and privatisat­ion programmes. The government has announced plans to sell government assets through a privatisat­ion scheme which will be formalised by enacting a public-private partnershi­p law.

He emphasised that if the government succeeds in improving the investment climate and in enhancing the role of the private sector, as outlined in the FYP9 and as successful­ly achieved in the past particular­ly in the power, water and port sectors, there is every reason that Oman will emerge successful­ly from the challengin­g global and regional economic environmen­t.

Ashok noted that not only the oil and gas revenue was budgeted on a conservati­ve note, but even the nonoil and gas revenue budget has been reduced by 2 per cent as compared to the amount planned in FYP9. This is primarily due to a significan­t reduction in projected corporate tax revenue, which should be partly offset by significan­t increases in other tax and fee revenue, including non-Omani labor license fees and customs duties.

He also drew attention to the excise tax of 100 per cent on tobacco, alcohol and energy drinks and 50 per cent on soft drinks which is likely to be introduced by Oman in conjunctio­n with the other GCC states.

The Budget statement issued by the Ministry of Finance also indicates that the Income Tax Law is to be amended in 2017. Such changes according to KPMG could include raising of corporate tax rates from 12 per cent to 15 per cent, removal of the tax free limit of RO 30,000, widening the scope of withholdin­g taxes and removal of many tax exemptions.

Although tax legislatio­n is likely to change during 2017, the 2017 budget does not anticipate any changes in government revenues as such changes will affect tax collection­s only in 2018. Ashok also mentioned that the GCC VAT agreement has reportedly been finalised and is expected to be released soon, paving the way for national VAT legislatio­n and likely introducti­on of VAT during 2018.

Ashok highlighte­d that Oman’s debt has increased significan­tly over the last few years from RO 1.5 billion in 2014 to the projected RO 9.9 billion in 2017 which would be 39 per cent of the budgeted GDP for 2017. Further the draw-downs from sovereign wealth funds to finance budget deficits have also resulted in sovereign net foreign assets falling. These factors have resulted in Oman’s ratings declining over the years although they are still reasonably good, he added.

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