Omani companies are unsure whether the proposed increase in corporate income tax will become effective for tax year 2016, since the government proposal is yet to be made effective in accordance with a Royal Decree.
The Oman government, as part of a measure to mobilise non-oil revenue in the aftermath of dwindling oil income, had proposed to increase corporate income tax to 15 per cent from 12 per cent at the beginning of the year.
Although the financial year is closing within two months on December 31, 2016, clarity on the revised tax rate is yet to emerge.
Ashok Hariharan, partner and head of tax for KPMG in Oman, said the Basic Law of the State (the constitution) provides that taxes will not have a retrospective effect. Given that the tax year 2016 is already closed for companies whose financial year ends on or before September 30, Hariharan said any changes in tax rates could be effective only from the tax year 2017.
“This will imply that the government will be able to collect the increased taxes in a majority of the cases only in 2018 when companies file their returns for tax year 2017,” noted Hariharan.
He pointed out that some companies have fixed March 31 or June 30 or even September 30 as year ending periods and many of them would have already filed their tax returns on the basis of the current tax laws.
“Any increase in tax rates stipulated in a decree that is issued in the future cannot, therefore, apply to them.”
The Oman government collected OMR350.70 million from income tax on companies for the first eight months of 2016, reflecting a drop of 10.6 per cent from OMR392.50 million for the same period of 2015, according to the National Centre for Statistics and Information (NCSI). According to the budget proposal, the estimated corporate income tax will be OMR520 million for 2016.
Since the majority of tax collection is within the first six months of the year, it appears that the government is unlikely to achieve its target.
Hariharan also mentioned that this (Royal Decree) has been the basis of the amendments in previous years. He drew attention to international accounting standard No.12 dealing with income taxes, which stipulates that tax provisions should be established by companies in their financial statements, based on laws enacted or substantially enacted on the balance sheet date.
As far as companies whose financial year has already ended, it is clear that on their balance sheet date the laws only provide for income tax at 12 per cent.
Hariharan added that unlike the tax rates, which are applicable for a tax year, there could be other changes in the tax law, which could be made effective from the date the decree is published in the official gazette. For instance, if the government were to widen the scope of withholding tax, which is applicable on payments made to foreign companies, these could be made effective from the date the decree comes into force.
By AE James
© Muscat Media Group