The economic and financial committee of the Shura Council, an advisory committee to the government of Oman, has proposed that the country should tax the billions of dollars sent out of the country by foreign workers, by two percent. Many countries in the region with a great deal of migrant workers have been looking at ways to account for the loss of this money in the economy, when workers send back a large portion of their paycheck to family members back home.
While worries of a negative effect have arisen, the deputy head of the committee, Ali bin Abdullah al-Badi has assured that the tax rate is appropriate so it will not have negative effects on the economy. At the moment no taxes are levied against money transfers.
Oman has a population of about 3.9 million people and of those, 1.5 million are migrant workers, most from southeast Asia and are the focus of the new proposed tax.
Of course the government says this tax isn’t going to solve all of its fiscal issues, but it would help to drive opportunities in diversifying income, which at the moment is mainly relying on oil and is steadily declining.
This tax would make foreign workers more expensive to hire, so the alternative effect it could have would be to create more jobs and hire more Omani citizens, which at the moment, many are suffering from unemployment.
In 2012, transfers accounted up to 3.1 billion rials ($8.1 billion) according to a report by the central bank. This would mean the proposed tax could bring in around 62 million rials a year.
Other countries such as Saudi Arabia have deported almost a million foreigners since last March in order to allow for more room for Saudi citizens to get into the job market and prevent money from flowing out of the country. The UAE also has been talking about leveling a similar tax, but does not have the same problem of being overly dependent on foreign workers, since the business model is based off of foreign investment and driving international trade.
But Oman, like most Gulf oil exporting states, is in a tricky situation as its oil resources decline and has to wane off its dependency on foreign workers. And with social unrest following 2011, the government had to boost state spending to keep order, which has had a strain on the state. Next year Oman is projected to spend around 13.5 billion rials; that’s up from the 12.9 billion that was planned for 2013. And that’s not including the approximately 900 million rials the government may have to pay to raise wages, effectively standardizing salaries after a royal order to do so in the public sector.
Other recommendations have also been made by the committee, including raising the royalty rate on natural resources and reevaluating fees collected by the government.
At the moment Oman is projecting a budget deficit of 1.8 billion rials, six percent of their GDP. However, as long as the price per barrel of oil doesn’t drop below $100, which is sits at $108 now, Oman should have a surplus in 2014. Yet, counting on oil is a slippery slope, as the Gulf state must look to other industries to help keep the economy on track.
Think you might be affected by this new tax as an expat? Talk with an adviser at Globaleye today to see how you can plan and prepare.