VAT will boost Oman’s global competitiveness
Omani government is set to introduce value added tax (VAT) from January 2018 and many are asking what it would mean to their personal finances or the economy in general. On the narrow side, people associate VAT as another taxation that would take money away from their monthly pay packets. They would save less because their shopping list would become dearer as every item in a shop would go up in price. However, on the wider view, the government would have more money in its coffers to spend in the country.
With Oman’s oil prices plummeting from $115 per barrel in June 2014 to about $50 now, the Sultanate needs to grapple with the economic realities and VAT makes perfect sense to expand the economy and make up for the income discrepancies. More money at the government’s disposal simply means more money available for projects. The government will start again to award contracts and the private sector would start employing again. As more graduates get employed, the spending power will increase to offset the VAT paid to the government.
Let’s also look at the fear of consumers that the introduction of VAT will increase the prices of goods and services. The general notion is that shopkeepers will pass on the cost of the VAT to buyers is not really true. The economy does not necessary work that way. The price flexibility of supply and demand will take over. It usually means that businesses might be making very big margins that they can absorb most, if not all, of the cost of the taxes to maintain their competitiveness. In other words, consumers will find prices more competitive as spending increase. For the wealthy, 5 per cent of VAT is not steep enough to cut spending because it would not hurt their pay packet. For the poorer, it simply means they will be making adjustments not to spend on the luxuries they do not need.
Besides, consumers have already been put to a test when the petrol prices went up by more 25 per cent after the energy subsidy removal. At the same, the removal of subsidies in the domestic utility bills has not really affected households. The experience of consumerism tax shows that most people normally adjust their spending to cut down on overspending. Here in Oman, there are reports that residents are now limiting their journeys since petrol went up. Also, domestic consumptions of water and electricity is well under control. The same philosophy can be adopted with consumerism.
In comparison with other countries that pay VAT, Oman will be among the lowest in the world. The UAE will also introduce VAT at the same time as Oman. The significance of having a neighbour country on the same taxation level is psychological. The UAE is a favourite short destination for Omanis and consumer prices will be similar across the border.
However, the government would need to start a campaign in the remaining months to give the new tax regime a soft landing. Workshops to educate common people as well as businesses will be useful. The logic and reasoning of having VAT in the country must be widely publicised in the media. Though the consumerism changes will not be a major one, but people will have time to ‘get into’ it before the time of its application. With the new academic year starting after the summer, it is also important schools and universities to include a special topic in consumerism and taxation and why it is important to the economy as a whole. We should not forget that students of today are the future employees or business people and that transition of education is important.
For the critics of the VAT, Oman cannot be left out in this important revenue source. It is also following the cooperation of GCC states that agree to implement the VAT at the same time across the region. So it is part of the regional alliance to strengthen the economies of the six countries. On the consumer side, 5 per cent more on the grocery bills will not be noticed by most people. It will be part of the usual inflation we experience every year that will have insignificant affect on our spending.