Gulf countries may explore income tax plans after Oman lays out 'roadmap'

Khaleej Times

10 hours ago

Following Oman's decision to impose income tax in 2028, other Gulf countries can also explore income tax to diversify their revenues, say experts.
As reported by Khaleej Times on Sunday, Oman will implement five per cent income tax from January 2028 on residents earning 42,000 Omani riyals (Dh400,000) annually.
'While other Gulf states currently have no plans to levy personal taxes, we anticipate that some form of income taxation — whether targeting higher earners, expatriates, or remittances — will be explored as an income stream in the medium term.
"As governments across the region continue seeking to diversify their tax bases away from oil dependency, Oman's approach may well provide a roadmap for similar reforms elsewhere in the Gulf,' said Scott Livermore, ICAEW economic advisor, chief economist and managing director, Oxford Economics Middle East.
He added that Oman's decision to levy income tax 'could serve as a testing ground, with the potential for expanded coverage in the coming years depending on its economic and social impact.'
Oman is the first country in the Gulf Cooperation Council (GCC) region to levy personal income tax, positioning it as a fiscal policy pioneer among its GCC peers, he added.
'Oman's introduction of a five per cent personal income tax represents an initial but significant step in the Gulf state's fiscal diversification strategy. While the move has limited coverage and revenue-raising potential in its current form – affecting only the top 1 per cent of earners – it demonstrates that Oman's authorities are willing to pursue policies that might still be considered radical elsewhere in the region,' said Livermore.
Rachel Fox, partner of taxation at Al Tamimi & Co., said details on precisely what sources of income would be considered as taxable for the purposes of the income tax, as well as which deductions may be permitted will only become clear once the legislation is published.
'However, it is anticipated that deductions will be permitted for education and healthcare expenses, zakat contributions and charitable donations, among other items,' she said in a statement to Khaleej Times.
Fox added that the income aims to strengthen the public finances of Oman, while aligning with the broader goals of Oman Vision 2040. 'Revenues generated from the tax will be used to fund Oman's social protection system and diversify its economy,' she said.
'As the first Gulf state to impose personal income tax, this marks a significant development in the region. It remains to be seen whether any of the other states will follow suit. At present, no other Gulf state has signalled an intention to introduce personal income tax.
"However, tax policy in the region is clearly evolving and the impact of this new tax is likely to be watched carefully by other states,' he said.
Vijay Valecha, chief investment officer at Century Financial, said exemptions and deductions will be allowed for significant costs, including zakat, education, healthcare and endowment.
He added that other exemptions include initial one-time exemption from income earned outside Oman for two years; one-time exemption for income from the sale of a secondary residence; inherited income and gifts.
Deduction will also be allowed for interest in financing the construction of primary residence (one-time effect only); the taxable income thus will be the gross income minus all the exemptions, deductible expenses, and losses.
' GCC nations have already enacted indirect taxation reforms … Looking at the initial guidelines of the proposed taxation rules, the overall structure looks more progressive, with only the top 1 per cent of the working class getting taxed. Furthermore, the provisions for the number of deductions and exemptions provide a proper way of tax planning for the taxpayers,' added Valecha.