Oman plans to introduce an unprecedented income tax on the country's top earners starting in 2022, the Ministry of Finance said on Sunday.
The tax is part of a program intended to alleviate the economic strain caused by the coronavirus pandemic and tackle a growing budget deficit caused by low oil prices.
The planned tax, which is still under consideration, would only apply to the country's top earners, but the Omani finance ministry has yet to specify income brackets.
The ministry was quoted by the Oman Observer as explaining: "Currently, the government is evaluating the tax and how it can be implemented. The government will evaluate the tax from all aspects including, societal impacts, economic impacts, and fiscal impacts, in order to ensure the most efficient and equitable tax for all."
Revenue from the income tax will be used to fund social programs, as detailed in an outline plan published last month, Reuters reported.
The move is unprecedented for Oman, which, like the other five members of the Gulf Cooperation Council (GCC), does not currently collect income tax from individuals.
Wealthy governments in the region have long steered clear of income taxes because the region's economic freedom has been used to attract investors, companies and labour, Bloomberg reported.
Oman's decision to impose an income tax is expected to be followed closely by governments across the Gulf.
Oman's program also plans a major overhaul of state subsidies on public services, which costs the country more than $2.5 billion annually, according to the Oman Observer.
There are also plans to gradually increase power and water tariffs over the four-year program, completely removing them by 2025, the plan added.
Reforms to state subsidies will focus on redirecting funds to only vulnerable sections of the Omani community.
The ministry explained: "This initiative intends to reallocate the subsidy to the vulnerable and people who deserve it…. and [to ensure] that support is provided for vulnerable populations."
International Monetary Fund (IMF) projections expect Oman's economy to shrink ten per cent this year, the largest contraction among the country's GCC peers.