OMAN MULLING OVER VAT IMPLEMENTATION

UNCLAS MUSCAT 000396

SENSITIVE
SIPDIS

STATE FOR NEA/ARP, EEB/IFD/OMA
COMMERCE FOR ITA THOFFMAN
TREASURY FOR OTA VALVO

E.O. 12958: N/A
TAGS: ECON ETRD PREL MU
SUBJECT: OMAN MULLING OVER VAT IMPLEMENTATION


1. (U) On May 26, non-local media reported that Oman intended
to implement a value added tax (VAT) to reduce the
government's dependence on oil exports for income, which
currently accounts for 79% of its revenue. The report quoted
a source from the Ministry of Commerce and Industry that the
VAT, to be levied on all goods except health care products,
may come into effect as early as next year.


2. (SBU) On May 28, Econoff raised the subject with Dr. Said
al-Riyami, Economic Expert, Ministry of Commerce and
Industry. Riyami confirmed that Oman would most likely
introduce a VAT based on a recommendation from a study
conducted by the World Bank. He continued that the tax, to
be introduced throughout the Gulf Cooperation Council (GCC),
would probably be levied on all consumer goods, except for
those pertaining to education and health care While unaware
of the exact rate of the tax, Riyami stated that the VAT
would be used to offset revenues lost from the implementation
of Oman's various free trade agreements, including that with
the United States and the one under discussion with the
European Union. He added that the timing on the tax's
rollout had not been finalized, but predicted that it would
not occur until next year at the earliest.


3. (SBU) Comment: Post believes that it is unlikely that
the government will introduce the VAT in the near term, given
the hefty budgetary surpluses it has posted over the past
three years, as well as public discontent over rapid price
increases of consumer products. Most telling is the absence
of any discussion of the VAT in the local media, as news of
the tax was only reported by Reuters. End Comment.
GRAPPO