GENERAL & ECONOMIC NEWS

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The amended Oman Income Tax law published in the Office Gazette on Sunday brings several new categories of income within the scope of the provision for taxing foreign persons carrying out activities outside of a permanent establishment.
According to a key executive of professional tax, audit and advisory services firm KPMG, the tax code previously imposed a 10 per cent tax on income earned by foreign persons operating outside the purview of a permanent establishment. Examples of such taxable income include: Royalties including rental income from industrial, commercial and scientific equipment; Research and development; Use or right to use computer software; and Fees for management.
However, Royal Decree 9/2017 promulgating the revised Income Tax Law, extends this tax to income realised from the following as well: Fees for the provision of services; Dividends from shares of joint stock companies; and Interest, said Ashok Hariharan (pictured), Head of Tax, KPMG Lower Gulf.
“The extension of tax to foreign persons earning fees from the provision of services is expected to capture everything other than the supply of goods,” the tax consultant noted. “This is a massive change in the scope of tax and is expected to generate significant revenues to the Government, which will at the same time result in escalation of costs of services by 10 per cent as foreign service providers are likely to push that cost to local businesses.”

Moody’s Investors Service has assigned a provisional (P)Baa1 senior unsecured issuance rating to the proposed US dollar-denominated global notes to be issued by the Oman government.

In a press release issued on Friday, Moody’s said it expects to remove the provisional status and assign a definitive rating upon the closing of the proposed issuance and a review of the final terms.

‘According to the draft transaction documents, the proposed global notes constitute direct, unconditional and unsecured obligations of the Government of Oman and rank pari passu with all other outstanding unsecured obligations’, Moody’s said.

It added that the proceeds of the notes are intended to be used for the sultanate’s general budgetary purposes.



Oman’s conventional banks have achieved a 7.69 per cent year-on-year growth in aggregate personal loan or consumer loan portfolio, which stood at OMR7,897.74 million by the end of December, 2016.

The aggregate personal loan portfolio of Omani banks constitutes 40.1 per cent of the total bank credit worth OMR19,704.58 million by the end of December 2016, the Central Bank of Oman said in its latest quarterly report.

The report said that on an incremental basis, the flow of credit to consumers resulted in an additional disbursement of OMR563.94 million in the last 12-month period ending December 2016.

Ironically enough, the growth in demand for personal loans was firm although new employees taking up jobs showed a slowdown in the aftermath of an economic slowdown caused by sluggish oil prices.

Personal loans are the key revenue drivers for the Sultanate’s financial institutions due to high interest margins.

As the country is in the process of introducing VAT (Value Added Tax) along with the rest of the GCC that can generate an annual contribution of RO 400 million to the Sultanate’s GDP, companies and their finance departments are currently updating their systems that fully comply with VAT requirements.
These companies, ranging from large, mid-size to small organisations, have already installed measures in place to ensure that starting 2018 they have an updated VAT provision for all the products and services that they deal with.
Majlis al Shura’s economic committee has decided to join hands with the rest of the GCC countries in introducing VAT by the middle of next year or may be earlier and it mulled over a mechanism on how to collect the VAT.
“We are listening to the authorities on how to go about the VAT and are currently in touch with economic and IT experts to update our systems that fully comply with VAT requirements”, Chief Financial Manager of a leading company in Oman said.
VAT, which will be incrementally deployed across Gulf countries in the short future, is said to be a measure to face the ongoing oil price crisis.
Experts say that activating VAT function or replacing the old systems of the big, small and medium companies will be the buzzword in the days to come.
“Scenarios such as updating existing systems by activating the VAT function of ERPs or simply taking the opportunity to replace old systems with next gen apps as we saw in Europe in the 2000s will be heavily prevalent”, said Arun Khehar, SVP Applications ECEMEA, Oracle in an e-mail.
“However, we will also witness the emergence of a third scenario which is cloud VAT services which will allow quicker deployments while ensuring the company is always compliant with any legal change”, he added.

Government of Oman is expected to announce the launch of a new US dollar bond issue this week as it seeks to plug a budget deficit caused by low oil prices, sources familiar with the matter said on Tuesday.

Citi, HSBC, JP Morgan, Societe Generale and Standard Chartered have been appointed to lead the transaction, the sources said.

Telephone calls to Oman’s finance ministry went unanswered.

The upcoming debt sale, expected to be around $1 billion or more, would come at a busy time in the Gulf`s bond market, as Bahrain launched on Tuesday a tap of up to $600 million of its existing 144 A/Reg S $1 billion bond maturing in 2028.

Salalah-based Dhofar Fisheries & Food Industries SAOG says it has obtained a fishing licence from the Ministry of Agriculture & Fisheries — a move that will help the company engage in ‘direct fishing’ operations to support its feedstock requirements rather than depend on less competitive imports and local procurements.
Direct fishing, according to the company chairman, is part of a raft of options being explored by the loss-making, yet operationally viable entity to achieve a turnaround in its financial performance over the coming years.
The company also plans to diversify its business activities beyond its current focus on fish processing and canning to include dairy products, fruit juices, and cold and dry storage. These plans were endorsed at an Extraordinary General Meeting (EGM) held on December 4, 2016.
The goal, according to Mahdi Mohammed Hassan Hassani, Chairman of the Board of Directors of Dhofar Fisheries & Food Industries, is to “maximise the utilisation of the existing production facilities” at its state-of-the-art plant at Raysut Industrial Estate in Salalah.
“This will result in efficiencies that will allow a more regular supply of the company’s products in the markets,” said Mahdi Mohammed. “Management is also focusing to diversify its production to other product lines like dairy and juice products, and will concentrate on direct fishing. Management has planned to expand the cold storage, can storage, and packing area facility. The company has started the necessary arrangements for these (initiatives),” he added in the Directors’ Report on the company’s financial performance for the year ended December 31, 2016.

Sohar Port and freezone is planning to establish an innovation zone inside the new free zone area, which will be built in close cooperation with Port of Rotterdam. “Together with private sector companies, international research institutes and some of the world’s top universities, we are seeking innovative solutions across a broad range of issues that affect our shipping, logistics and industrial sectors,” said Mark Geilenkirchen, chief executive officer of Sohar Port. “Ultimately this will all be in the best interests of consumers, both locally and internationally.”

Sohar Freezone will also witness a number of new developments in 2017, as plans for the second phase of the Freezone take shape. The first 500-hectares of phase one have almost all been leased out, explained Freezone CEO Jamal T Aziz: “We are currently improving the business environment based on the output received from Oman’s ‘Tanfeedh’ process. This includes further streamlining the Freezone’s One-Stop-Shop procedures for investors and ensuring that international best practices are applied. A new bonded road corridor, featuring the latest international customs procedures, will further improve connectivity between the port and adjacent free zone.”

A new customs duty of 0.5 per cent on bank notes imported by exchange houses and banks was withdrawn by the government within four days of introducing the same, after money exchanges submitted a memorandum to the Central Bank of Oman (CBO).

Hamoud Sangour Al Zadjali, executive president of the Central Bank of Oman, told the Times of Oman that “everything is normal now.”

In fact, the customs department had decided to introduce customs duty on imported bank notes on February 13, which jacked up the value of foreign currencies (against Omani rial) sold by money exchanges for a few days as the exchange houses were passing on the additional burden to customers. After introducing the new levy, exchange houses were paying OMR5,000 for every OMR1 million worth of bank notes for three days (before the customs duty was withdrawn). As a result, exchange houses in Oman were selling $1,000 for OMR388, against OMR386 for every $1,000. Now, it is back to normal level.

Oman`s oil minister said on Wednesday there is room for non-Opec countries to cut output further as part of a supply deal agreement with Opec producers.

"Their numbers came as such because time was tight," Mohammad bin Hamad Al Rumhy told reporters in Kuwait.

The minister later said: "Russia told us since the beginning the cut will take some time."

He added he expects Russia’s compliance with the agreement to be better in February and March.

Rumhy described overall compliance with the agreement as okay in January and expects it to be better this month.

Meanwhile, Oil slipped further below $56 a barrel on Wednesday as an industry report showing a large rise in US crude inventories signalled ample supply, even as Opec achieves record compliance with its supply-cut accord.

US inventories rose by a larger-than-expected 9.9 million barrels last week, the American Petroleum Institute (API) trade group said on Tuesday, ahead of the Energy Information Administration`s (EIA) official supply report.

Oman’s budget deficit for 2016 stood at OMR5,010.5 million as falling crude oil export revenues started affecting fiscal balance, according to the latest monthly statistics released by the Central Bank of Oman (CBO).

This is slightly lower than an initial OMR5,300 million estimated by the government at the time of announcing this year’s state budget, but much higher than the budget proposal of OMR3,300 million for 2016.

The Sultanate’s government has enhanced its overseas borrowings to meet the deficit as the government does not want to disturb the liquidity situation and interest rates within the domestic market.

Country’s total revenue

CORPORATE NEWS

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As part of its value to put Safety and the Environment first, Orpic began its Waste Free Environment (WFE) campaign yesterday in the Wilayat of Al Suwaiq, north Al Batinah Governorate.
WFE promotes recycling and encourages a more responsible attitude towards litter disposal and the need for the community to respond to environmental issues. Each clean-up has a strong educational component and stresses how we can give waste, in particular plastics, a useful second life. The WFE campaign is organised for the fourth time in the Sultanate and is held from February 26-28, 2017.
Orpic employees, together with members of the local community, including schoolchildren, gathered in unity to clean three villages in the Al Suwaiq region and learn more about the importance of eco-efficient waste management. This year, Orpic provides a unique opportunity for children to present their environmental projects, inspire each other with their environmental work, become active environmental citizens.
“A long with WFE campaign, such initiatives represent a great importance to Orpic in order to drive environmental awareness among the society due to the ancient human-environment relationship in every aspect of our daily life. Hence, it is vital that individuals and particularly school students realize the need to recycle and learn more about ways to better recycle environmental waste. This will contribute to solve many issues our environment is facing,” says Dr Hilal al Hinai, General Manager Corporate Support Services, Orpic.

The Civil Service Council reviewed a report prepared by the Ministry of Civil Service on various upcoming projects during a meeting held on Sunday.

The meeting held under HE Sayyid Khalid Bin Hilal Al Busaidi, Minister of the Diwan of Royal Court and Chairman of the Civil Service Council reviewed the proposals to develop governmental works.

These projects include human resources development, the application of quality system, the governmental services manual and the e-communication system.

The council also reviewed the report prepared by the Institute of Public Administration on the key achievements and efforts in 2016, especially the training programme and the consultancy studies carried out by the Institute.

It also covered the partnership with the private sector to implement various activities and publication of research.

The report also touched on the Institute’s cooperation with a number of Arab, regional and international organisations to enhance cooperation with them and share experiences and successful practices.

The meeting reviewed the follow-up report on what has been done to implement the decisions and recommendations of its fourth meeting in 2016.

Potentially thousands of small Omani businesses that were hitherto exempt from any corporate income tax are now liable to pay tax, albeit at a modest rate of three per cent, effective from the 2017 tax year. The amended tax code, promulgated via Royal Decree 9/2017, effectively brings all of the estimated 120,000 companies registered with the Ministry of Commerce and Industry within the purview of Oman’s tax system. However, any tax may be payable only if they generate a profit on their turnover, according to a Muscat-based tax consultant.

“Under the amended tax code, all companies registered with the Ministry are now liable to pay income tax. If their turnover is less than RO 30,000, they pay a flat tax of 3 per cent on their profit, but if their income is over RO 30,000, then the enhanced tax of 15 per cent applies,” Davis Kallukaran (pictured), Managing Partner — Crowe Horwath Oman, said. In comments to the Observer, Kallukaran explained that all businesses that have been issued Commercial Registrations (CR) will now be required to submit their balance-sheets for evaluation of their tax status every year. They include companies that were tax exempt in the past because of their modest capital or turnover.

Oman Logistics Company SAOC (Khazaen), the master developer behind the Sultanate’s maiden integrated logistics city in South Al Batinah, has announced plans for the establishment of a one-of-a-kind Central Automotive Market at its emerging hub.
The wholly government-owned firm says it is collaborating with the Ministry of Commerce and Industry in the development of a so-called ‘Auto Mall’ that will serve as a one-stop destination for all kinds of automotive related investments, services and activities.
Covering an area of around 245,000 sq metres, the proposed Central Automotive Market will offer dedicated areas for showrooms, open air display zones, car auction pavilions, outlets for automotive spares and accessories, workshops and service centres, and other automotive activities.
In line with the government’s broader support for projects based on the Public-Private-Partnership (PPP) model, Khazaen plans to partner with a private developer that will play a lead role in the implementation and operation of the Central Automotive Market.
A competitive tender floated by Khazaen yesterday seeks to appoint a well-established private firm that will design, finance, construct and operate the facility, along with the associated infrastructure, under a license arrangement with the master developer.
As an integrated one-stop hub for automotive sales and services, the Auto Mall will also offer car insurance, registration and related services all under one roof — an added advantage that will ensure strong investment inflows, as well as footfalls to this unique automotive destination, said Khazaen in a statement.

Partnering with one of its corporate members, PricewaterhouseCoopers, the Oman American Business Centre (OABC) organised a seminar to discuss the introduction of Value-Added Tax (VAT) in both the Sultanate and the GCC.
The event was held at the Grand Hyatt Muscat and welcomed more than 60 business representatives and entrepreneurs from across the Sultanate.
To date more than 114 countries worldwide have adopted the VAT regime with tax rates varying from 25 per cent in Denmark to 10 per cent in Lebanon and Egypt.
VATs in the GCC are expected to be set at 5 per cent, with estimates of an annual contribution of RO 400 million to the Sultanate’s GDP.
This is according to the Ministry of Finance.

An upward revision in customs charges and new levies for importing goods will raise the landed cost of various products in the country, according to sources in importing firms and shipping agencies.

The customs department has started charging an additional 2 per cent on the CIF (cost, insurance and freight) value of imported products for non-submission of original legalised documents. The 2 per cent additional charge is reimbursable once the importer produces the original legalised documents of certificates of origin and commercial invoice within 90 days. These documents have to be attested by the embassy of Oman in the exporting country.

United Power, the first independent power company in Oman set up under the build, own, operate and transfer (BOOT) scheme, is awaiting the outcome of a study undertaken by the regulatory authorities, which will determine whether it can continue operations beyond 2020.

The company will continue to run both, phase one and two units, till 2020 at which time the plant assets will be handed over to the government, according to the management discussions and analysis report of the United Power Company. The company has a power generation capacity of 260-270 megawatt at Manah.

“As per the power purchase agreement’s conditions, the company has to hand over the plant to the government in April 2020 for a value of OMR1,”ZoherKarachiwala, chief executive officer of the United Power Company, told the Times of Oman. Now, the Oman Power and Water Procurement Company has to take a decision about the future of the Manah power plant. The authorities may float a tender for building another plant there. However, considering the international practice, a plant like the one in Manahcan run for many more years.

Meanwhile, the company’s transmission and distribution network was transferred to the Oman Electricity Transmission Company (OETC) and the Mazoon Electricity Company (MEC)on December 1, 2016. While transmission assets were transferred to the OETC,the MEC received distribution assets.

Low level of oil prices during the past couple of years brought to the fore several challenges to the Omani economy, impacting overall economic activity.

According to the bulletin published by the Central Bank of Oman (CBO), preliminary national accounts data for Oman indicated that the nominal GDP declined by 9 per cent during the first nine months of 2016, compared to the same period last year.

The decline was reflected primarily in the petroleum sector with a fall of 29.4 per cent and a marginal drop of 0.2 per cent in the non-petroleum sector.

While manufacturing and wholesale and retail trade were adversely affected, value addition showed positive growth, mainly in construction, agriculture and fishing, as well as in real estate services. Average annual inflation for the year remained moderate at 1.1 per cent. The fiscal gap widened during the year and the government took several measures to augment non-oil revenues and rationalised government spending, apart from stepping up external borrowings, given that the current level of debt to GDP ratio remains relatively low.

The rial remains strong and there is no change in its value, according to Central Bank of Oman Executive President HE Hamoud Bin Sangour Al Zadjali.

Denying any decline in its exchange rate, he told Al Watan, the sister publication of Oman Tribune, that the existing cash reserves with the CBO was sufficient to cover the rial. Moreover, the monetary and economic conditions of the Sultanate were stable and positive, contributing to enhancing the status of the rial in terms of exchange or purchasing power, he added.

Zadjali said the fixed exchange rate for the rial provided monetary stability in terms of low inflation rates, and also contributed to enhancing the degree of certainty and stability of the economic environment, This helped in boosting investment.

The bank maintained sufficient foreign reserves and adopted a monetary and banking policy contributing to enhancing stability and maintaining attractiveness of the rial.

Since 1973, the Sultanate has adopted a fixed exchange rate of the rial against the dollar; the most important currency in the world.

The third phase of Duqm Airport Project in the Governorate of Al Wusta has been completed 50 per cent, according to Dr Mohammed Bin Nasser Al Za’abi, CEO of the Public Authority of Civil Aviation (Paca).

All construction work is expected to be completed by the end of this year, which includes passenger terminals, navigation and meteorology complex.

The meteorology complex includes a control tower building, cargo building and other facilities for companies operating the airport.

Al Za’abi said: “The operation of Al Duqm Airport and the move to passengers’ terminal will be in 2018, after completing two years of work. Before moving to the airport total readiness is to be ensured by all operators, including Omani Airports Management Company, Oman Air, the Royal Oman Police and other agencies in coordination with the Special Economic Zone Authority of Duqm.”