VAT-exempt free samples to be capped

Ceilings: Newly published Executive Regulations place caveats on the value of freebies or promotional items given away by a taxable supplier during a tax year

Free samples and promotional freebies given away by businesses will be exempt from Value Added Tax (VAT) provided their aggregate value does not exceed a certain limit stipulated in the Executive Regulations issued recently by the Tax Authority in support of the VAT Law

Value Added Tax (VAT) comes into effect across the Sultanate on April 16, 2021 as part of a slate of measures adopted by the Omani government to help beef up national revenues and reduce the annual fiscal deficit attributable to a sharp decline in oil export revenues.

A flat five per cent tax will be applied to goods and services supplied by businesses and organisations, although many types of goods and services are either zero-rated for VAT or tax-exempt altogether.

According to tax experts, businesses or organisations handing out free samples or giveaways will not be required to levy VAT on these goods.

However, the Executive Regulations specify a number of caveats: Firstly, such freebies may be distributed only for the purpose of promoting the sale of that specific product;

Secondly, the value of such gifts or giveaways to a recipient shall not exceed RO 50 (including tax) during a tax year; and

Thirdly, the total value of such samples provided by the business to all recipients in a tax year shall not exceed RO 1000 (including tax).

Likewise, Article 35 of the Executive Regulations allows businesses and organisations to levy VAT at the discounted price if a discount or reduction is granted by the taxable supplier.

This is however applicable on the proviso that (i) the value of the discount or reduction is recorded in the tax invoice, and (ii) the supplier has a clear policy with regard to discounts and reductions, say tax experts.

Businesses and organisations across the Sultanate are gearing up to get their enterprises ready for VAT, registration for which commenced in phases last month.

CONRAD PRABHU

@conradprabhu