Oman plans income tax on top earners in a first for Gulf states

Oman has been enacting fiscal reforms as part of its economic diversification to reduce its reliance on the oil, an objective it shares with other Gulf countries.

Oman has announced plans to impose income tax, becoming the first Gulf state to do so in an effort to broaden its sources of public revenue beyond oil.

The 5% levy won’t take effect until 2028 and only applies to annual income of 42,000 rials ($109,000) or above, state-run Omani News Agency said late Sunday. That means that only the top 1% of earners will have to pay the tax, according to the economy ministry.

Minister of Economy Said bin Mohammed Al-Saqri said the measure will reduce reliance on oil income by diversifying public revenue while maintaining social spending.

No country in the oil- and gas- rich Gulf Cooperation Council, which has six members, has income tax. For the likes of Saudi Arabia, the United Arab Emirates and Qatar, that’s a big draw for foreign workers, and Oman’s move will be closely watched by the others.

“While the scope is narrow, it will still be a significant fiscal development in the region,” said Monica Malik, chief economist of Abu Dhabi Commercial Bank. “Oman is looking to progress with fiscal reforms while still remaining competitive. This is especially at a time when high-net-worth individuals are moving to the region.”

Though the GCC states tend to have solid fiscal balances — only Saudi Arabia and Bahrain are set to have deficits this year — the International Monetary Fund has said they may eventually need to introduce such taxes to diversify their revenue base, especially if demand for fossil fuels wanes in the coming years.

Oman has been enacting fiscal reforms as part of its economic diversification to reduce its reliance on the oil, an objective it shares with other Gulf countries. The sultanate has raised funds via privatizations, including a record $2 billion from the initial public offering of its state energy company’s exploration and production unit last year.

Oman’s income tax “could act as a catalyst to other GCC countries implementing the tax as well in the future,” said Malik.