Further clarity awaited on VAT for Oman’s oil and gas industry

Executive regulations: While upstream and midstream activities are zero-rated for VAT, downstream activities likely to be standard rated at 5 per cent Oil & Gas activities will be zero-rated for Value Added Tax (VAT) only for the upstream and midstream segments of Oman’s hydrocarbon business — a key source of revenue for — Omani economy. According to tax experts of leading multinational professional services network PwC, downstream elements of the business — encompassing refining and petrochemicals — are likely to be standard rated at five per cent VAT, going by the Executive Regulations issued by the Tax Authority recently. The tax experts however hastened to stress that further clarity on the applicability of VAT for the Oil & Gas industry when sector-specific tax guides are issued by the Tax Authority ahead of the formal implementation of VAT starting from April 16, 2021. The comments came in a recent podcast, titled ‘PwC Energy, Utilities & Resources Series — What do the new Oman VAT regulations mean for the Oil & Gas industry?’ A number of PwC tax executives offered their perspectives on the implications of VAT for the Sultanate’s pivotal energy sector. While the VAT Law promulgated last October allows for zero rating on oil and gas products, Executive Regulations issued last week further build on this definition by affirming that supplies of Oil & Gas, along with their derivatives, can also be zero rated for VAT. Accordingly, the zero rating will apply to related goods and services linked to the supply of oil and gas, they noted. Significantly, this zero-rating applies only to primary and intermediate oilfield activities, which correspond to the upstream and midstream segments of the Oil & Gas business, an executive said. “So for upstream producers, the supplies with relation to exploration and production and extraction will be zero rated; the domestic production of oil and gas also will be zero rated, and any subcontractors involved in services in the production of oil and gas will be able to zero rate their supplies for upstream activities.” What’s unclear at this stage is how far down that supply chain will zero rating apply. The keenly anticipated tax guides are also expected to shed further light on the need for service providers to be registered with the Ministry of Energy and Minerals to benefit from zero-rated VAT. In the Sultanate, contractors, vendors and service providers to the industry must necessarily register on the Joint Supplier Registration System (JSRS) in order to qualify to compete for oilfield contracts. The tax guides, according to the PwC experts, will also help address questions left unanswered by the executive questions, such as, for example, the treatment of VAT to Exploration & Production Sharing Agreements (EPSA), farming arrangements, and what the new levy means for operators and non-operators, and so on. Nevertheless, given the penalty regimes prescribed under the Law, businesses are encouraged to be fully compliant with the requirements of the new tax from the outset of its implementation, they added.   CONRAD PRABHU @conradprabhu