Value-Added Tax – A Trilogy of Citizen, Trader and the wheel of Economy
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VAT ! That three lettered word which trended on social media platforms since its announcement in Oman. This announcement has been met with various responses by the public, some supporters while others were quite reluctant. Between them are the ones lost in this all, not quite comprehending this to-be imposed system. What is VAT? And why now ? Value- Added Tax might be new to the region, but it’s a common worldwide. It’s a consumption tax placed on certain products and services. As the name suggests, value is added to every stage of the supply chain, increasing the price of said products and services.
The main aim of such tax is to raise governments revenue with minimal impact on taxpayers. This revenue would be ultimately utilized to further develop the Sultanate’s infrastructure as well as public services.
The main aim of such tax is to raise governments revenue with minimal impact on taxpayers. This revenue would be ultimately utilized to further develop the Sultanate’s infrastructure as well as public services.
This form of taxation is implemented in over 180 countries worldwide and it’s commonly found in the European Union. VAT was introduced to the GCC during the last few years in the UAE, Saudi and Bahrain and is to be implemented in Oman this upcoming April at the rate of 5% which is considered the minimum. VAT could be as high as 25% such as in Sweden and Denmark or 15% such as in Saudi Arabia.
Value Added Tax is considered to be a simple and effective method of taxation, as it is standardized and relatively easy to implement and collect.
Value Added Tax is considered to be a simple and effective method of taxation, as it is standardized and relatively easy to implement and collect.
Legislative bodies have exempted a list of products and services from taxation as follows to mention a few :
– Basic food commodities.
– Medical care services and associated goods and services.
– Educational services and associated goods and services.
– Financial services.
– Sale of vacant lands.
– Rent/Resale of residential properties.
– Passenger transport services.
– Requirements for people with disabilities and charity organizations.
So how is this tax implemented ? Most importantly, how does it affect the economy, consumers and SMEs?
Regarding consumers it’s quite straightforward: You pay 5% extra, but when it comes to SMEs it could be more than it meets the eye. As mentioned previously, VAT is added to every stage of the supply chain till it reaches the consumer.
For example, if you owned a cafe and a cup of cappuccino cost you OMR 1, it would become 1.05 after VAT. the OMR 0.05 going to your supplier. If you used to sell this cup of cappuccino for OMR 1.5, first you’d add the OMR 0.05 – that went to the supplier – then add 5% to the new total, which adds up to approximately OMR 1.63.
The example above is an extremely simplified case, supply chains can be quite complex. Initially, one would think that the consumer is the sole victim of this new tax, but that is not necessarily true. Business owners and SME could be greatly affected by this new tax if they were not able to establish a proper system to manage it.
Though consumers pay the tax, business owners are the tax collectors. The increase in the price is minimal and shouldn’t affect either parties, the real issue here is knowing how much. Figuring out how to price goods and services after tax could make it or break it for businesses and SMEs, and trying to do book-keeping in an actual book won’t cut it anymore and might result in financial strain and reduced revenue. Remedying this by increasing the prices arbitrarily won’t be a solution either, as inflated prices would greatly affect the business competitiveness.
In this upcoming chapter of the economy, it is simply crucial to have a sophisticated accounting system that provides support especially for small scale businesses which cannot afford extra personnel.
In this upcoming chapter of the economy, it is simply crucial to have a sophisticated accounting system that provides support especially for small scale businesses which cannot afford extra personnel.
Another issue to be considered by business owners is good practice when applying VAT to their goods and services which could ultimately project negatively on the establishment. Such as not adding the final price post VAT on the items, which could cause confusion and unpleasant surprises to the customer and further issues when other taxes are applied. This is common practice in Europe where VAT is quite common.
Another issue to be considered by business owners is good practice when applying VAT to their goods and services which could ultimately project negatively on the establishment. Such as not adding the final price post VAT on the items, which could cause confusion and unpleasant surprises to the customer and further issues when other taxes are applied. This is common practice in Europe where VAT is quite common.
Value Added Tax is a taxation system that is simple and standardized and the 5% to be adopted in Oman this upcoming April is among the lowest internationally. It will enhance the Sultanate’s international competitiveness in the global market and the revenues of it will contribute to building a sustainable economy for the future generations of this country.
References:
The official website of the tax authority: taxoman.gov.om
The Government Communication Center at the Ministry of Information – Sultanate of Oman