Does VAT expected to affect Entrepreneurs in Sultanate of Oman?

Abstract

Introduction

The implementation of Value Added Tax (VAT) in Oman signifies a major change in the fiscal strategy of the nation. The VAT legislation that was enacted by His Majesty Sultan Haitham Bin Tariq via Royal Decree No. 121/2020123, was made public in the Official Gazette 1362 on 18 October 2020 and the law became operational 180 days after its publication in the Official Gazette which was on 16 April 2021 (Decree, 2020). The VAT implementation process in Oman has been intricate which necessitated a substantial modification to business systems and procedures. Businesses have had to revise their accounting systems, educate their personnel, and alter their pricing and invoicing practices but despite these hurdles, the introduction of VAT is projected to significantly enhance the economy by augmenting government revenues as well as fostering economic stability (Akram, W., 2023). Value-Added Tax (VAT) is a consumption tax that is levied on a product as value is increased at various stages of the supply chain from the stage of production to final sale, while entrepreneurship involves starting a business and assuming financial risks so that one could make a profit (Alotaibi, 2021). The government has been encouraging entrepreneurship actively as a crucial factor when it comes to diversifying the economy beyond the oil and gas sector and in 2021 a substantial fiscal reform was initiated by the government in Oman in turn introducing Value Added Tax (VAT) that was set at 5% for most goods and services provided in the country (Arslan, A. et al., 2023)

The implementation of VAT in Oman affects all businesses, including Small and Medium Enterprises (SMEs) which are vital to the economy of the country and may face significant impact from the tax change and even though VAT may raise prices for goods and services as well as impact the competitiveness of SMEs it could also boost government income that can be used to benefit SMEs as well as the economy (Deloitte, 2020). The introduction of VAT could have several impacts on entrepreneurship whereby it could increase the cost of doing business. Entrepreneurs, particularly those in SMEs, may face increased costs as they are required to pay VAT on their inputs and may need to pass these costs onto consumers in the form of higher prices which could potentially reduce demand for their products in the process impacting their profitability and growth (Erero, 2021). The study is focused on investigating the influence of VAT on entrepreneurship in Oman and aims to comprehend the ways in which the implementation of VAT has impacted entrepreneurs in Oman, the obstacles that they encounter, and the tactics that they use to navigate this new tax environment. This study has been framed to study the significance of VAT, to understand SMEs’ awareness on VAT, to identify the SMEs’ knowledge on VAT and to determine the SMEs’ attitude on VAT system in Oman on their sustainability.