Which other GCC state could introduce income tax after Oman?

Bahrain and Kuwait could be the next GCC countries to introduce income tax after Oman in the oil-rich region as low crude prices and the coronavirus pandemic takes a toll on government revenues, say tax experts.

They believe that the next Gulf country could announce imposing income tax from 2023 onwards on the high net worth individuals, ranging between 5 to 15 per cent.

According to a Reuters report dated November 2, Oman’s finance ministry, said that the Sultanate is expected to introduce an income tax on high earners in 2022, in order to bring down its fiscal deficit.

Currently, the UAE, Saudi Arabia and Bahrain levy excise tax value-added tax, while Oman plans to introduce VAT from April 2021. Some of the other regional countries also levy corporate taxes on oil companies.

Anurag Chaturvedi, managing partner for Chartered House Tax Consultancy, said Bahrain and Kuwait are scrambling to boost state revenue which got hit during pandemic as well as low crude prices may introduce income tax for high net worth expats considering a significant decline in fiscal revenue this year and increasing fiscal deficit year on year.

Bahrain recorded a decline of 29 per cent revenues in the first half of 2020 compared to the same period last year, whereas Kuwait total revenues fell by over 16 per cent for the financial year ending 2020. Earlier this year, Saudi Arabia had a discussion on the proposal to tax the income of expats, however no decision has been reached with regards to this proposal so far.

Chaturvedi also said that globally countries levy tax to provide better life in the form of infrastructure, security, health, education and avenue for economic benefit. “On the similar lines, GCC may also introduce income tax against the social spend on state infrastructure.”

Nimish Goel, partner at WTS Dhruva Consultants, suggested Bahrain could announce a tax on the income of companies rather than taxing the income of individuals.

He said that the reduction in the global demand for oil, recommendations of IMF to include income tax to broaden revenue sources, low rates of corporate income tax and disparity in income levels are some of the factors that can prompt regional governments to levy new tax.

“Introduction of corporate income tax should bring stability and more foreign investment in the region,” he said.

Income tax in 2023?

Goel said that since Oman has given a window of one-year approximately, it may be expected that other GCC nations shall continue to announce the introduction of income taxes, thereafter.

The rates of income tax, according to Goel, depend on various factors such as progressive rates, demographic composition, social security benefits etc.

“If income tax is ever introduced, the rate of tax would not be too high just like value-added tax (VAT) and it could be anywhere in the range of 10 per cent to 15 per cent”, he added.

Chaturvedi however, noted that if weaker economic activity continues in 2021, resulting in further widening of the deficit gap, the regional governments can take some decision to levy income tax from 2023 with a rate between 5 to 10 per cent on annual net income.