Value Added Tax expected to be imposed by early next year
Oman should get a welcome financial shot in the arm from a massive shopping splurge as residents snap up bargains ahead of Value Added Tax kicking in.
VAT at 5 per cent is expected to be imposed in Oman by early next year. It will effectively end tax free shopping in the Sultanate and add thousands to the cost of homes, cars and luxury items.
In other countries where the new tax was introduced, sales peaked in the months leading up to the introduction and slumped in the months immediately after.
Oman’s bargain hunters will be out in force throughout the second half of this year, according to experts and sales will peak around Christmas time.
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“We can expect a massive hike in sales in December 2017, just before the implementation of VAT in Oman,” Nick Giannopoulos, VAT Director at PwC, said.
“Retailers are expected to come up with special promotions and offers to increase their sales during the final quarter of 2017 as they would be unable to find buyers for the same products easily once these are taxed. Also, consumers of particularly expensive products like cars and televisions are likely to upgrade their assets tax free,” he explained. Oman is expected to levy a 5 per cent VAT on retail purchases, car sales and rentals, hotels and restaurants, repair and maintenance while exempting or zero-rating the tax for essentials like food, medical supplies and education.
Though its rate will be low, VAT is expected to drive inflation by around 2.5 per cent with retailers expecting buyers to avoid unnecessary sales immediately after its implementation as people will stock up before it comes into place.
According to Justin Whitehouse, Indirect Tax Leader at Deloitte Middle East, as the deadline for implementation approaches, consumers will consider buying large items early to evade tax.
“It is reasonable to expect demand to peak towards the end of 2017, assuming a January 2018 implementation date, for things like cars, household appliances etc. Likewise, consumers may even choose to shop early for smaller items, particularly in the days leading up to its implementation. Businesses will need to consider the implications of these changes in demand in areas like stocking, staffing and even their relationships with finance businesses,” said Justin Whitehouse.
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“Sales of phones are expected to increase in December if VAT is implemented in January. We will start preparing once the directive is out by the Ministry. Consumers can expect lot of offers by December instead of discounted rates from phone dealers,” an official from a major phone dealer in Oman said.
According to an official of a major car dealer in Oman, the automotive sector is set to see unprecedented sales towards the end of the year
“For the first time, we expect sales to increase towards the year-end, while, normally, this is the time for lowest levels in sales. We have started to plan campaigns at that time but as long as the government does not specify the framework, we can’t have anything concrete,” he said, on condition of anonymity.
Recently, Bahrain signed the GCC-wide VAT framework. With that, all six members of the cooperation council have now agreed to a unified law defining implementation methodology. However, according to the framework, countries can implement the tax according to their own timeframe as long as it is within two years of the first country implementing VAT.
Analysts believe that all six countries will implement it by the end of 2018, keeping in mind soaring fiscal deficits.
The framework is expected to be ratified by the GCC countries within the next couple of months. Giannopoulos highlighted that companies need to begin stockpiling to keep up with the expected rise in demand.
“Companies need to identify and keep the right stock in place by the end of the year to serve the consumers efficiently and post maximum sales volumes,” he explained.