OPINION: Oman’s plan to impose income tax on selected high earners from 2022 is likely to trigger a similar response from other Persian Gulf Arab nations, which are facing unprecedented financial constraints in the wake of collapsing oil prices and the Covid-19 pandemic.

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Countries in the Gulf Cooperation Council (GCC) region have historically maintained a generous personal tax regime, incentivising foreign workers and companies to invest in their economies, which remain heavily dependent on oil wealth.

However, with this year's oil price crash, some Persian Gulf nations are now looking to implement tax measures to grow non-oil revenues.

Saudi Arabia earlier this year tripled its value-added tax rate to 15%, a move aimed at narrowing its budget deficit and diversifying its revenue streams.

Oman’s move in recent days to impose personal taxes in the short term could lead to Saudi Arabia, the United Arab Emirates and Qatar following suit.

Saudi Arabia’s budget deficit is expected to widen to 12% of its gross domestic product this year, amid persistently low oil prices.

Similarly, the UAE — which has otherwise been a tax haven for millions of workers — could yet see drastic changes in its tax regime.

However, any move by the Persian Gulf countries to impose high personal taxes could backfire in the long term, leading to reduced spending and resultant dire economic consequences.

For Arab nations that have been heavily dependent on oil income for decades, diversification of their energy basket could prove a much more sensible alternative.

(This is an Upstream opinion article.)