Monday, January 5, 2009

Monetary Union for GCC - except Oman - but agreement on VAT

Nice to see some actual progress at the AGCC conference, because it seems the old story on a GCC wide, including Oman, Value Added Tax [VAT] continues to rumble along, and as the only viable effective income tax the Governments can introduce at this stage in the GCC economic development. This according to HE Mr. Macki quoted in the Gulf News. A VAT will also force the Government to have significantly more information and control over the internal economy especially, with the need to apply VAT credits for VAT paid on a business' purchases, and payment of taxes on ts sales. There is a lot of paper involved in VAT, so more jobs for civil servants too.

In addition, as long as average oil prices stay over $45 this year, the budget will be subsidised by the State reserve fund, and there's a reasonably good chance of that if OPEC implement their cuts. Good to see Oman's production up too.

Photo www.daylife.com2 months ago: Saudi Finance Minister Ibrahim al-Assaf (L) and Minister of National Economy and Deputy Chairman for Financial Affairs of Oman Ahmed bin Abdul Nabi Macki talk upon their arrival for a meeting in Riyadh October 25, 2008

He makes the fair point that the tourism sector is growing at a good clip it would seem, but then again, it's coming from a very low baseline and still only accounts for less than 3% of GDP. Given the huge investments being made, I'm not sure I find 23% growth very good. If any sector, Construction must have boomed in 2008.

Expenditure will grow and salaries are safe, he said. All in all, I agree with Minister Macki that 2009 will be relatively benign for Oman, especially in contrast to many other parts of the world. The rapid reduction in growth will catch a few businesses with inventory problems, and the market price for construction equipment should drop. Together with the soon to feed through drops in global prices for almost everything, especially cement, shipping, steel and food, construction should continue to do well.

The only big exposures for Oman will be the oil price, naturally, and the continued plan to remain fixed to the dollar. The dollar looks like it will face a big correction sometime in 2009, and is already down 10% or so of late, [but after the big recovery of the dollar rate in 2008 that we are all enjoying right now when we repatriate funds!]

The big question for me: I wonder if in his original speech he actually said 'Cyclone Gonu', or did he say 'unusual weather conditions'...?

Omani reserves will cover deficits

By Sunil K.Vaidya, Bureau Chief
Published: January 03, 2009, 23:19

Muscat: Ahmad Bin Abdul Nabi Macki, minister of National Economy and Supervisor of the ministry of Finance, yesterday said that any deficit caused by oil prices dropping below $45 a barrel would be covered by emergency reserve funds as well as restructuring the project plans.

"We will not touch salaries as we look for cuts if the oil price drops below $45," he said during a press conference after announcing the state's general budget for 2009 prepared with the oil price estimated at $45. He said that Oman has in the recent past targeted tourism as one of the main sector in governments bid for economic diversification.

"The tourism sector continues to grow and is expected to realise a growth rate of 22.3 per cent by virtue of the increase in lodging capacities in the country and efforts exerted to market Oman as a tourism destination," he said.


He also announced that people affected by tropical cyclone Gonu in 2007, especially along the Batinah coast, would get 2,200 housing units as part of the first phase, expected to cost of 339 million Omani riyals (Dh3.39 billion).

The total expenditure for the financial year 2009, he revealed, was estimated at about 6.4 billion Omani riyals against 5.8 billion riyals in 2008.

GCC endorses VAT
Ahmad Bin Abdul Nabi Macki, Oman's minister of National Economy and supervisor of the Finance ministry, deputy chairman in the Financial Affairs and Energy Resources Council, has said that the introduction of Value Added Tax (VAT) was a joint GCC decision.

He also added that the study to introduce VAT in the GCC countries was underway to compensate for the loss of revenue following the Customs Union and Common market introduction.

In reply to a question he said: "There are no plans to introduce any other taxes."

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