Oman to Introduce GCC’s First Personal Income Tax

Moustafa Daly
Cairo

---

Oman wants to boost tax revenue but says that ‘99% of the population’ will not have to pay personal income tax.

Oman will implement a personal income tax (PIT) on high earners starting January 2028, becoming the first Gulf Cooperation Council (GCC) country to adopt such a measure. The tax will impose a 5% levy on individuals earning more than OMR 42,000 per annum (approximately US$110,000).

The Tax Authority said it would implement PIT to diversify Oman’s revenue base and reduce reliance on oil. It added that it would set a high exemption threshold to ensure that “99% of Oman’s population” remains unaffected.

Authorities plan to issue executive regulations detailing the tax’s implementation within a year of its publication in the Official Gazette, which is set to happen next week, according to local media.

Sadaf Buchanan, Partner and Head of Banking and Finance at Dentons, explained that “the introduction of PIT has been a hot topic for years for those in the know,” but its rollout faced delays due to the pandemic and Oman’s recent implementation of VAT.

Details of the tax

The PIT will apply to both Omani citizens and expatriates with high incomes. At a flat rate of 5%, the tax remains modest by global standards but marks a significant policy shift for the GCC, which has long been associated with a tax-free environment.

The law spans 76 articles across 16 chapters, defining taxable income and outlining deductions and exemptions. Deductions will cover various expenses, including education, healthcare, primary housing, inheritance, charitable contributions, and donations. Authorities will release the full details of these provisions next week.

Buchanan emphasized the need for clarity on how deductions will be calculated and whether differences will exist between expatriates and Omani citizens. “I believe the real detail will be in the Executive Regulations, and those may not be issued for another year,” she added.

Oman’s introduction of personal income tax (PIT) aligns with its broader economic strategy to address fiscal challenges and reduce dependency on oil revenues. Oman aims specifically to increase non-oil-related government revenue to nearly 20% by 2040, thereby diversifying its fiscal base, promoting wealth redistribution, and enhancing social equity.

As of 2024, Oman’s oil and gas sector contributes approximately 30-40% of the country’s GDP and directly generates over 85% of government revenue.

A shift in GCC tax policy?

Although Oman is the first to introduce the PIT, it is not the most oil-dependent country in the GCC. Oil dependency remains high across GCC economies:

• Kuwait derives 80-90% of its government revenue and 50-60% of its GDP from hydrocarbons, making it one of the most oil-dependent countries.
• Qatar follows, with oil and gas contributing 70-80% of revenue and 45-55% of GDP.
• Saudi Arabia has moderate dependence, with oil accounting for 60-70% of government revenues. Saudi Arabia’s oil share of GDP is around 40-50%.
• The UAE is the most diversified, with oil accounting for only 25-30% of GDP.
• Bahrain’s financial sector reduces the oil sector’s contribution to GDP to approximately 15–20%, yet oil still represents around 70–75% of government revenue.

While geopolitical tensions, such as the recent Israel-Iran conflict, have temporarily pushed oil prices to nearly $90 per barrel, the long-term trend has been one of declining oil prices. This is pushing GCC governments to explore alternative revenue-generation strategies.

Recent tax reforms in the GCC

Oman’s PIT represents a departure from traditional GCC fiscal policies, yet it reflects a broader trend of tax reforms across the region in recent years.

Since 2017, GCC countries have introduced various taxes to reduce their reliance on oil. Value-added tax (VAT) is now in effect across the region. Saudi Arabia implemented it in 2018 and later increased the rate to 15%. The UAE and Bahrain levy a 5% VAT, while Oman followed suit with its own 5% VAT in 2021.

Corporate income taxes (CIT) have also expanded. Oman and the UAE have imposed rates of 15% and 9%, respectively, while Saudi Arabia taxes foreign-owned businesses at 20%.

The likelihood of other GCC countries adopting personal income tax varies. Kuwait and Bahrain, with their heavy reliance on oil revenues and less diversified economies, may be more motivated to implement such measures to shore up their budgets.

In contrast, the UAE remains an outlier. Oil aside, its economic model now also depends on attracting high-net-worth individuals (HNWIs) and expatriates by maintaining minimal taxation. Introducing PIT in the near term could undermine its reputation as a low-tax haven, making it less likely to follow Oman’s lead for now.

Still, Buchanan speculated that Oman’s PIT might not remain an isolated measure. “While Oman may be the first, I don’t believe it will be the last,” she said, adding that institutions like the IMF have long recommended tax reforms to strengthen fiscal policies across the GCC region, “not just in Oman.”