VAT, or value added tax, made its debut back in 2018 when the GCC announced 5% for the companies who are reporting over $100,000 in annual revenues. The tax was introduced by the Federal Tax Authority in the UAE on both individuals and businesses and will be introduced in Oman from 1 April 2021.
We all understand the importance of taxes for the economy. It is equally important for the citizens to understand all and any applicable taxes as well as pay them in a timely manner. Let us provide you with a detailed guide on what VAT tax is in Oman and how it works.
What is VAT?
The public sector of any country is responsible for running the economy as well as the social drives of the country. In order to run these public sector departments smoothly, taxes are collected from individuals and businesses.
The government uses this collected money to run the public sector. Our public education institutes, hospitals, infrastructure, defense departments, etc. runs through the collected taxes. Some taxes are directly collected by the government from the individuals making money such as income tax and others.
The other type is the indirect tax that is collected through intermediary units such as retail stores. The taxes that fall under this category are sales tax and VAT tax.
VAT – Value Added Tax
VAT is charged and collected at every stage of the supply chain for the goods and services that are bought and sold in any country. While the VAT is added to the final cost for the consumer, at different stages of the product or service lifecycle, the end consumer has to pay for it.
The businesses or individuals who produce and sell the goods and services are responsible for collecting the tax on behalf of the government. They should also adjust their accounts to reflect the collections from end consumers as well as payments made to suppliers on behalf of the end consumers.
If you are wondering whether you paid sales tax or VAT on the last good you purchased or service that you availed, it might have been both. While the sales tax is applicable to the last step of selling the goods or services, VAT is applied to all stages of the product or service production and is collected at the end.
What is VAT for?
It is probably one of the most decent ways of collecting and reporting taxes. Instead of individuals, it is the businesses that bring good or service for the end consumer in the market. This is a more reliable approach and can help to avoid any misrepresentation of numbers or evasions of taxes.
Why is VAT collection important for the Oman government?
It helps the government to generate enough income for the smooth operations of public sectors. It also helps reduce the dependence on oil reserves of the country. This is basically a better alternative to just relying on natural reserves of the country.
Does everyone pay VAT?
Not really, since there are few exemptions announced by the government where individuals or businesses are not required to pay VAT. As an example, in real estate, the supplies for commercial construction are VAT applicable; however, the supplies of residential construction are VAT exempt. There is a separate section of “Zero Rated Supplies” which explains everything about VAT exemptions.
How does VAT work in Oman?
Like other applicable taxes in the country, VAT also requires certain steps which are to be followed for an error-free system of tax reporting and collection. Here is a basic flow of how VAT collection and filing work in Oman.
Business/Individual VAT Account Registration
Businesses or individuals who do not fall under zero-rated supplies exemption and make earnings of OMR 35,000 annually are required to register for the VAT collection. For those who are earning more than OMR 19,250 for now, it is optional; they may choose not to register for VAT.
Collection of VAT
Once a business is registered with the Ministry of Finance via through the online portal, all business transactions with end consumers contain the 5% VAT of each stage of the supply chain of goods or services. The tax is paid to the supplier by the business on behalf of the end consumer, and the tax collected from end consumers on behalf of the Omani government.
Filing of VAT Return
On completion of each tax year, the business is required to file a tax return to consolidate the amounts paid to different stakeholders. Depending upon the consolidated numbers, either the business pays a differential amount to the government, or the subsequent payment of VAT is adjusted if the business has already paid more than the actual numbers.
Tenure of VAT Filing
There are standards tax periods, such as:
– Business operating with more than a certain threshold must file the VAT return on a monthly basis
– Business operating with less than a certain threshold must file the VAT return on a quarterly basis
The Ministry of Finance in Oman may choose to define a different tax filing period for specific businesses/cases who fail to comply. This may lead to penalties and/or fines.
How does VAT impact individuals/businesses?
VAT will impact an individual if the consumption trends include most of those items that are not VAT exempted. Therefore, VAT actually helps to drive the spending behavior of individuals, which in the long run may help the economy to boost the consumption of certain items or vice versa.
In the case of businesses, they work as a reliable intermediary between government and individuals for a more accurate and error-free collection of taxes. In order to have smooth business operations, the chances of fraudulent sales/VAT collection are way less than individual income tax reporting and collection.
Altogether, VAT is helpful for a more reliable structure of tax collection, leading to better facilitation by the government on many levels. Therefore, it should be the prime responsibility of the businesses to come forward, register for VAT, and help the government for the collection of VAT.
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This article is written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of its contents.