Oman has suggested tax rises due to the plunge in oil prices

An advisory body to Oman’s government has suggested sweeping spending cuts and tax rises, including a levy on liquefied natural gas exports, to cope with the hit to state revenues from the plunge in oil prices.

Oman has run a small budget surplus so far this year but the slide of the Brent crude oil price to around $80 a barrel in recent months, from levels of around $115 in June, promises to push it into deficit next year unless oil rebounds sharply.

Assuming an average oil price of $80 next year and no additional steps to boost revenue, the government is likely to post a deficit of 3.05 billion rials ($7.9 billion), state news agency ONA reported Monday.

The Shura Council therefore suggested reforms to expand Oman’s non-oil tax revenues, including an expansion of tax categories, a review of tax rates, the addition of new tax sources and improvements to the efficiency of tax collection.

A 12 percent royalty would be levied on the revenues of telecoms operators; this would add 31 million rials from Oman Telecommunications Co. and the local operations of Qatar’s Ooredoo, ONA said.

The council’s economic and financial committee also recommended imposing a 2 percent tax on the remittances back to their home countries of the more than 1 million foreign workers in Oman. This would generate about 62 million rials.

Another recommendation by the committee was to increase royalties paid for mineral exploitation to the maximum percentage stipulated in Oman’s Mining Law – that is, 10 percent of sale revenues.

Meanwhile, the committee suggested imposing a “fair tax” on LNG exports, to raise an additional 196 million rials.

The Shura Council estimated the new tax steps would generate a total of 302 million rials, raising estimated state revenues to 12.24 billion rials in 2015.

It also suggested a 5 percent cut in spending on oil and gas production, defense and security, and development projects, which would reduce 2015 state expenditure by 280 million rials to 14.72 billion rials.

Finance Minister Darwish al-Balushi is expected to announce Oman’s 2015 budget plan at the end of next month or early in January.

With smaller oil and gas reserves than its wealthy Gulf neighbors and a higher cost of production, Oman is particularly vulnerable to the oil price drop. Some other governments are also taking moderate steps; Kuwait has said it will cut some energy subsidies, and Abu Dhabi is raising utility prices.