MUSCAT: The Omani government recently announced the budget plan for 2017, that factored in a deficit of OMR3 billion. The shortfall has not quite reached earlier expectations, and we still need to find ways to reduce it. These include supplementing traditional methods such as austerity measures, removal of subsidies, and caution while approving government spending with innovative solutions.
However, we first need to ask ourselves if we can achieve our goal without affecting development projects and programmes that require generous budgets. Is it possible to reduce the deficit without negative impact on reform plans in key sectors – such as industry, agriculture, and tourism – that are expected to drive development efforts in the coming years, as outlined in the Tanfeedh programme?
While we may not have definitive solutions to this issue, we do have some insights and ideas that can spearhead a cultural movement and initiate a dialogue – leading to important conclusions on how to reduce our national deficit.
First, we must thoroughly re-evaluate our tax laws that have undergone several stages of development. The first law on income tax was issued in 1971, followed by the law on corporate income tax in 1981, and the corporate profit tax law in 1989. Finally, 2009 saw the enactment of the new income tax law in line with the financial advancements the country witnessed following the signing of several regional and international agreements and joining the World Trade Organisation. In 2016, the Omani parliament voted for significant tax increases in petrochemicals, non-oil natural resources, and natural gas sectors.
The need to enhance the tax law is much more pressing today, amid the decline of oil prices and the sluggish global economy. In this context, countries in the GCC region are seriously considering passing a selective commodities tax law, following discussions in Council meetings.
The law aims to impose higher taxes on select non-essential consumer goods, such as tobacco, soft drinks, and energy drinks. This category could include large-engine private cars, or second or third cars owned by a single family. Imported commodities that have national alternatives can also be subject to higher taxation. A growing range of products that are harmful to consumers, the environment, or the national economy may feature on the list as well.
Selective commodities taxes result in more prudent spending habits among consumers in addition to ensuring investments directed towards sectors at the forefront of the country’s economic progress.
Since the newly-introduced tax will reduce indiscriminate consumption, it is only natural that people’s savings will increase. The best way to invest these savings is through purchasing sukuk. In order to ensure that the proceeds from the sales of sukuk to individuals is allocated towards reducing the deficit and minimizing external debt, the institution issuing the sukuk must be a wholly national entity. Through their investments in sukuk, Oman’s citizens and residents will become bona fide partners in the country’s development projects.
