Top 10 Highlights of Oman State Budget 2017

Introduction

On Sunday, 1st January, 2017 Oman released its state Budget which clearly states Government’s decision to cut spending and reducing the trade deficit. The whole Gulf region is dealing with the crisis because of the sharp fall in oil prices resulting in increased trade deficits of all the countries in the region. Moreover, Oman is not having rich oil and fiscal reserves like neighbor countries; therefore, there is a pressing need to divert prime source Governmental income from oil to other sources of revenue. This article aims to share some key highlights of Oman State Budget 2017.

Highlights

1.    The State budget 2017 expects the average price to be around USD 45 per Barrel for the year considering the last year low of 24 USD per barrel.
2.    Ministry of Finance at Oman mentioned that it is planning to maximize revenues from sources other than oil and shall be changing regime of Income Tax, excise duty on various goods like tobacco and alcohol and amendments in fee for hiring expat employees.
3.    It also states that new openings in the public sector will be limited in the year 2017 with an objective to reduce the burden of public sector salaries on the State Budget. The private sector will have to create jobs. Further, the private sector will also have to bear the extra baggage of increased fees for hiring expats and taxes levied by the Government. A cut in tax exemptions and subsidies and increased power tariffs will affect private sector revenues substantially.
4.    State budget suggests an increase in income tax rates to 15 percent for later years, which shall add to the revenues to Government in the future but burn a hole in the pockets of tax payers.
5.    The royalty payable to the Government by Oman Telecommunications and Ooredoo Oman, two of the major telecommunication firms in Oman have been raised to 12 percent from the existing 7 percent. This resulted in a sharp fall of shares of both the firms immediately after the announcement.
6.    The State Budget 2017 also indicated Government’s intentions to promote public private partnership and sell states’ share in many companies. This shall be started by selling state’s share in Muscat Electricity Distribution Co., which is targeted to be completed in the first half of 2017. It also mentioned governments’ intentions to make the best use of public private partnership to reduce burden of public sector and promote private sector investments in development projects. It is also proposed to enact a law for public private partnership in near future.
7.    This budget also projected increase in foreign borrowing to 133 percent, which shall be the prime financing tool for governmental expenses in covering the deficit for the year 2017.
8.    The budget 2017 recognizes the Government’s commitment towards “Tanfeedh” an initiative launched in 2016 which is expected to create more than 30,000 jobs for Omani citizens and to support GDP growth by more than 1.3 billion Omani Riyals.
9.    The budget also states that legislation for Value Added Tax (VAT) is already prepared and shall be placed for review and approval of appropriate authority very soon. It is expected that VAT shall be applicable in all GCC countries by the end of 2018.
10.  It also recognizes the needs for efficient tax collection mechanism and monitoring of compliance processes.

Bottom Line

The state budget of Oman, 2017 shows the governmental strategy for reducing dependence on oil revenue and diversification towards other sources of revenue. It also lays down special emphasize on public private partnership for encouraging sustainable developments and growth of employment opportunities in the country. However, some provisions may not be welcomed by the private sector because of their adverse impacts on revenues of the private sector. Government of Oman clearly stated its focus will be reducing government expenditures and increasing revenues from different sources to reduce fiscal deficit for a long lasting and sustainable growth of the nation which shall definitely bring desired results in near future.