Oman Guide: What Is The VAT Impact On Insurance Sector In Oman?
16th April 2021 witnessed the introduction of VAT in Oman, making it the fourth nation in GCC to implement this tax. This decision comes at a time when the Oman’s economy is struggling against a falling GDP. With the pandemic posing serious hurdles to the economic growth of Oman, the government now looks forward to support the economy by charging a value-added tax on various goods and services. It is necessary that insurance policyholders and insurers stay informed regarding the implications of the new tax. This would enable them to stay compliant with the laws and make sound decisions.
What does the implementation of VAT in Oman mean for the insurers?
The implications are a little tricky for the insurers, depending on how they choose to adjust to the new change. The government has imposed a value-added tax of five percent on insurance policies, starting from 16th April. It is the insurers who would ultimately be paying up the VAT to the government. They may approach this in two ways:
- An insurer may include the VAT for Insurance sector in Oman as a part of the policy by raising the policy rates. Thus, the people who would be investing in insurance policies would have to shell out an extra five percent as value-added tax. The profits would remain unchanged for the insurers if they do not make any other changes except adding the VAT to the old price.
- Increasing the policy prices would make it tougher for the insurers to compete against their rivals. In the current, competitive environment, every insurance company tries to woo clients by offering lower rates than the rest. If an insurer wishes to stay competitive by leaving the policy prices unaltered, they may compromise on their profit instead. This implies that the individuals buying the policies would not have to pay the extra five percent VAT. Instead, the insurer would deduct it from their own profit.
Thus, while paying the VAT in Oman, the insurers would have to choose between profit and competitiveness. If a majority of the insurers increase their policy prices to maintain their profit levels, those that compromise on their profit might stay ahead in the competition by attracting more policy holders.
How would the VAT impact the policyholders in Oman?
The future policyholders would have to pay 5% tax as VAT for Insurance sector in Oman while purchasing an insurance policy. Those who already possess a policy would have to pay the tax from their next renewal onwards. However, insurance claim settlements would be exempted from VAT. While filing their income taxes, the policyholders would be eligible for a deduction under ‘input tax’. The amount that they pay the insurer for the policy, including the VAT for Insurance sector in Oman, would be deducted from their income when the tax authorities calculate their income tax.
In the past, Bahrain, KSA and UAE were the only GCC countries that had implemented VAT. The introduction of VAT in Oman would help to strengthen the economy of Oman in these troubling times.
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