30/12/2015 07:55 AST
Corporate tax revenues could swell by as much as RO 135 million next year if the Omani government decides to heed a call by the Majlis Ash’shura to raise the tax rate by three percentage points, a leading tax consultant has revealed.
Davis Kallukaran (pictured), Managing Partner of Horwath Mak Ghazali LLC (Member of Crowe Horwath International), said the proposed hike, if indeed ratified and rolled out as part of the 2016 State Budget, could see corporate tax receipts balloon to around RO 670 million for 2016.
Last week, the Shura Council voted to recommend a slew of revenue generating measures for the government’s consideration, designed to alleviate the shortfall projected in state revenues stemming from the collapse in international oil prices. It mooted, among other measures, an increase in corporate income tax from the present 12 per cent to 15 per cent, in conjunction with a simultaneous scrapping of the exemption limit of RO 30,000 currently in place.
Crunching numbers on the implications of a hike on tax receipts, Kallukaran said: “Corporate tax receipts for 2014 amounted to RO 448 million, and were pegged at RO 402 million for the January — October 2015 period. Extrapolating this data, the tax collection for fiscal 2015 is estimated at RO 485 million.
Assuming the trend will be similar for 2016, corporate tax revenues at the existing rate of 12 per cent is projected at RO 535 million. This could rise to RO 670 million at the recommended tax rate of 15 per cent, resulting in an incremental jump of around RO 135 million for 2016,” he explained.
Significantly, the measure — if implemented — could potentially see tens of thousands of Omani firms being added to the corporate tax base in 2016.
According to analysts, an estimated 75,000 firms are currently registered with the Secretariat General of Taxation (Tax Department) of the Ministry of Finance. Of this number, only around 5,000 companies pay taxes, leaving a staggering 70,000 firms — the vast proportion of them SMEs — potentially open to taxation if the proposed hike goes through. Processing their tax returns will also require a significant ramp-up in the manpower resources of the Tax Department, it is pointed out.
Regardless, the tax increase — if legislated into law — is unlikely to have a significant impact on business sentiment, says Kallukaran. “Seen in the context of the current global scenario, this increase seems reasonable and unlikely to adversely impact the business community. In recommending the tax hikes, the Shura Council is clearly demonstrating solidarity with the nation amid these challenging economic times, and wants the business community to come on board as partners in national development.”
However, any move to scrap the exemption limit of RO 30,000 is likely to hurt businesses, he warned. “It’s necessary for companies to be able to suitably defray their expenses become their income is taxed.
After all, every business is risk prone and entrepreneurs should be suitably compensated for their initiative and efforts. In particular, exemptions should be given to start-ups and those that add value to local resources and create employment as well,” he stressed.
Revenues from corporate tax are an important source of income for the government. The tax rate for establishments, Omani companies and permanent establishments is 12 per cent of the taxable income in excess of RO 30,000. Companies engaged in petroleum exploration are subject to 55 per cent of the income realised from sale of petroleum.
Oman Daily Observer
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