In a landmark policy shift, Oman has become the first Gulf Cooperation Council (GCC) country to implement a personal income tax law, signaling a major evolution in the region’s fiscal landscape.
Starting in 2028, a 5 percent tax will be levied on individuals—both Omani nationals and expatriate residents—earning more than OMR42,000 annually (approximately $109,234). This move is expected to impact only about 1 percent of the population, as the average annual salary in Oman remains below the OMR20,000 threshold.
The new personal income tax targets high-income earners and forms part of a broader national strategy to diversify public revenue sources away from oil dependency.
“The tax serves as a new revenue stream to diversify public income sources and mitigate risks associated with reliance on oil as the primary revenue source. It will help maintain current levels of social and service spending while preserving Oman’s achievements in financial and economic stability under ‘Oman Vision 2040‘ and its first executive phase, the Tenth Five-Year Plan (2021-2025),” said Dr. Said Mohammed Al Saqri, Oman’s Minister of Economy.
The decision marks a significant milestone not just for Oman but for the wider GCC region, where tax-free personal income has long been a defining feature of the social contract. As economic diversification becomes a shared regional imperative, Oman’s move sets a precedent.
Will other GCC states follow suit, or maintain their long-standing no-tax stance to remain competitive in attracting talent and investment?
Key highlights of Oman’s new personal income tax law
The nation’s tax authority noted that the exemption threshold is considered high, as it amounts to OMR42,000, and the specified tax rate is 5 percent, which is also considered low. The law also includes deductions and exemptions that take into account the social situation in the Sultanate of Oman, such as education, healthcare, inheritance, zakat, donations, primary housing, and other factors.
The exemptions under the new tax law include:
- Initial one-time exemption from income earned outside Oman for two years.
- Exemption for income from the sale of a primary residence.
- One-time exemption for income from the sale of a secondary residence.
- Exemption for inherited income and gifts.
- Exemption for income from industrial property right for five years from the date of registration.
- Deduction for interest on financing the construction or purchase of a primary residence (one time only).
- Deduction for zakat, charitable donations, and endowments (waqf).
- Deduction for education and healthcare expenses.
Therefore, the taxable income will be the gross income minus all the exemptions, deductible expenses and losses. A tax slab of 5 percent will apply if net income exceeds OMR42,000.
Move to yield significant economic benefits
Personal income tax is a fiscal tool adopted by most countries worldwide as a key revenue source to fund state-provided services. Over 190 countries impose this tax, and in many, income taxes constitute the largest component of total tax revenues at the federal and local levels, financing public goods and services.
Oman’s Minister of Economy said implementing the personal income tax will yield significant economic benefits, supporting income diversification strategies and long-term fiscal stability as a pillar of economic growth. It will also sustain government revenues, strengthen the state’s financial position, maintain credit ratings and boost spending power for beneficiaries, directly stimulating aggregate demand and economic growth.
“Oman’s introduction of a 5 percent personal income tax represents an initial but significant step in the GCC state’s fiscal diversification strategy. While the move has limited coverage and revenue-raising potential in its current form – affecting only the top 1 percent of earners – it demonstrates that Oman’s authorities are willing to pursue policies that might still be considered radical elsewhere in the region,” said Scott Livermore, ICAEW economic advisor, and chief economist and managing director, Oxford Economics Middle East.
Will the Oman model serve as a template for GCC peers?
Livermore added that this policy could serve as a testing ground, with the potential for expanded coverage in the coming years depending on its economic and social impact. “What’s particularly noteworthy is that this positions Oman as a fiscal policy pioneer among its GCC peers,” he added.
GCC nations have already enacted indirect taxation reforms. The imposition of VAT and corporate tax on big corporations already sees fiscal taxation collection for the Gulf states. For instance, the UAE has collected over $45 billion since the initial VAT implementation date of January 2018. Similarly, Saudi Arabia has collected over $15 billion since the initial implementation date of January 1, 2018.
Oman, which is now the first GCC state to implement personal income tax, was the last to implement VAT.
“Looking at the initial guidelines of the proposed taxation rules, the overall structure looks more progressive, with only the top 1 percent of the working class getting taxed. Furthermore, the provisions for the number of deductions and exemptions provide a proper way of tax planning for the taxpayers,” said Vijay Valecha, chief investment officer, Century Financial.
He added: “While major institutions, including the IMF and the World Bank, now see GCC indirect tax incorporation as a tectonic shift, most GCC nations have not publicly announced their initial plans for even drafting a personal income tax proposal.”
Read: Oman becomes first GCC state to impose personal income tax starting 2028
GCC to explore some form of income taxation in the medium term
For the UAE and Saudi Arabia, any planned incorporation would be gradual, more flexible and announced well in advance, added Valecha. He noted that ongoing trends within the GCC suggest a lot of inter-regional migration, and foreign nationals are also seeking jobs and business opportunities here. This has turned out to be one of the anchor support factors for the growth in diversification themes in both these nations.
“The overall increase in the general residency population and a rise in the new Ultra High Net Worth Population here suggest that any significant incorporation of direct tax or associated taxation policies would be done with much thinking and policy planning. Any direct enactment could also be a double-edged sword for the GCC nations since the allure of 0 percent personal income tax is the number one factor driving the growth in the new residency population and business setup here,” he added.
While other GCC states currently have no plans to levy personal income tax, Livermore anticipates that some form of income taxation – whether targeting higher earners, expatriates, or remittances – will be explored as an income stream in the medium term.
“As governments across the region continue seeking to diversify their tax bases away from oil dependency, Oman’s approach may well provide a roadmap for similar reforms elsewhere in the Gulf,” he concluded.
