In GCC first, Oman introduces income tax for expats and locals

Oman will introduce an income tax for high earners, becoming the first Gulf country to implement a personal levy on earnings in a bid to generate new sources of revenue.

A royal decree was issued on Sunday, stating that from 2028, expatriates and locals earning over 42,000 Omani rials ($109,091) per year - around one percent of the population - will pay a five percent tax on their earnings from 2028.

The tax should diversify Oman's revenues, which currently rely heavily on oil and gas receipts, as rapidly changing energy markets mean that high energy prices can no longer be guaranteed in the future.

"The law also includes deductions and exemptions that take into account the social situation in the Sultanate of Oman, such as education, healthcare, inheritance, zakat, donations, primary housing," the country's tax authority said in a statement.

Taxation is a sensitive issue in the Gulf region, due to the vast sums of money GCC states derive from natural resources and a general lack of political and democratic freedoms.

As part of this social contract, Gulf citizens pay no income tax and enjoy subsidised living costs and other benefits.

No other Gulf country has an income tax, but the move could pave the way for more Gulf states to introduce a levy for high earners in a bid to find alternative sources of income, amid attempts to diversify their economies.

Over the past eight years, Gulf states have broken the taboo on taxation by introducing VAT for goods sold within the country.

Saudi Arabia has a VAT of 15 percent, Bahrain 10 percent, and Oman and the UAE five percent, while Kuwait and Qatar have not yet introduced a sales tax.

Gulf states have also ramped up so-called 'sin taxes' on alcohol and tobacco and sold off some state assets in a bid to generate new revenues.