Tax Evasion in Oman, Essay Example for Everyone

Tax evasion is a term used to refer efforts made by a person or an entity, for example, a company not to pay taxes by illegal means. Essentially, tax evasion can be referred to as an art of dodging to pay taxes illegally. In other words, tax evasion occurs once the taxpayer, who may be a person or an entity does not pay taxes, which is illegal in many countries, including Oman. Tax evasion is a fraudulent or criminal activity as the taxpayer avoids to pay taxes otherwise due and owing in accordance with tax laws. As such, tax evasion is generally considered as an offense in many jurisdictions, including Oman and the European Union. The European Commission provides the following definition: "Tax evasion generally comprises illegal arrangements where tax liability is hidden or ignored, i.e. the taxpayer pays less tax than he/she is supposed to pay under the law by hiding income or information from the tax authorities" (Otto, Michael, Philipp, Gertraud, Martina, and Martin, 2015, p. 5). In addition, tax evasion can be considered tax fraud it is deliberate. Otto et al. (2015, p. 5) articulate that, "Tax fraud is a form of deliberate evasion of tax which is generally punishable under criminal law. The term includes situations in which deliberately false statements are submitted or fake documents are produced."

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Within the legal framework of nations in which there are active wealthy people and companies, organizing for tax planning is essential. Even though the concept of tax planning is meaningless for ordinary citizens, it is important and advantageous. In taxation, the terms, "permanent, not currently present" and "permanent" were coined and in matters of legal and illegal tax paying encompasses three strategies. Firstly, "tax compliance" is mainly understood as the endeavors on the part of individuals and businesses to calculate and pay taxes in accordance with the set regulations. For this reason, tax evasion is the opposite of tax compliances thereby making it an illegal activity undertaken by a company or individual with the intention of reducing their taxation obligations and payments. In this case, the taxable income and capital is not or is partly declared while the other tax information is withheld. In many of the countries, including Oman, it is a criminal offense and only a few, for example, Liechtenstein and Switzerland consider it as a civil offense (Palan, Murphy, and Chavagneux, 2013). As such, in Oman, the different legal approaches usually lead to different consequences. Notably, the actions of the taxpayers that run counter to the intention of the legislators are important for a political and economic consideration of the tax evasion phenomenon.

The principles of tax avoidance include postponing the payment of taxes, tax arbitrage across people in different tax brackets, and tax arbitrage across income streams that face variant tax treatments. Tax avoidance, in most instances, involves a combination of the three principles. Postponement of tax liabilities is usually deemed valuable primarily because the bills that are paid later are usually cheaper than the bills that are paid today. This is because the defaulter can earn off the money that is saved now. In addition, postponement is also viable mainly because if the defaulter is in a high-income tax bracket now, they can wait to pay for the taxes until they are in a lower tax bracket, implying that they will pay less in the new bracket compared to the older one. Additionally, tax evasion entails not reporting self-employment income, especially when the payments are made in cash and falsely claiming deductions. In addition, tax evaders also seek an opportunity where they keep two sets of books so that they report lower income to the tax authorities that what they actually earn. They can also fail to report transactions that are made in cash. Other avenues that tax evaders use is use or bartering so as to avoid goods and services tax. All these strategies are applied in Oman, which evidences that tax evasion is a common problem in the country.

Taxation in Oman

The Omani tax regime is mainly governed by a corporate tax law that was published in the Official Gazette in June 2009 and came into effect on January 1, 2010 (Malik and Singh, 2016). However, the secondary legislation, which was particularly in the form of executive regulations was issued in January 2012. In addition, Oman entered into various double taxation treaties with other countries, such as with India, and signed even though yet to be ratified by others.

Companies, including those of native Omani people, joint ventures, partnerships, sole proprietorships, as well as permanent establishments of foreign companies are usually subject to Omani income tax. In most instances, a flat rate of 12% on the taxable income that exceeds ORM 30,000 is levied on an annual basis to all companies that have been registered in the nation regardless of the extent of foreign participation, number of branches, as well as permanent establishments of foreign companies (Malik and Singh, 2016). Essentially, the foreign businesses that provide periodic consultancy among other services in Oman, either via their employees or even the designated agents, usually should be aware of the aggregate periods of at least 90 days spent in Oman in any 12-month period will create a permanent establishment for corporate tax liability. Additionally, income that is generated from the sale of petroleum is also subject to a special provisional rate of 55% (Malik and Singh, 2016).

Even though there are no specific capital gains tax or special tax treatment of these gains, for example, those taxes that are derived from selling fixed assets. The gains are usually at the same rates as the ordinary income. The gains or dividends on the sale of shares that are locally listed sold under the Muscat Securities Market (MSM) are usually exempted from tax (Malik and Singh, 2016). Additionally, the director general of taxation is mandated to determine if a foreign company that has business operations in Oman constitutes a permanent establishment as dictated by the Oman tax law. For this reason, the director as the right of levying taxes on such companies even when these companies have been registered in the nation. There is an exception to foreign companies in that their branches, as well as other foreign-owned entities that operate in Oman, do not have to pay taxes once they generate income outside Oman.

Companies are usually needed to file provisional tax returns and consequently pay for the estimated tax within a period of less than three months after the financial year ends (Malik and Singh, 2016). The final annual income tax returns should be filed within a period of six months after the financial year of the company ends, which is also accompanied by the audited financial statements, as well as payment of all taxes that are due (Malik and Singh, 2016). However, in Oman, for foreign people with more than one permanent establishment in the nation must file for single tax returns, but should cover for all the establishments with the amount of tax payable based on the aggregate taxable income.

Additionally, there are tax holidays that are mainly available for companies, including those that have been incorporated under Oman's Foreign Capital Investment Law and particularly involved with the following activities: mining, manufacturing, agriculture, hotel and tourist village operations, livestock farming, fishing, higher education, exports, private learning institutions, training and teaching institutions, as well as private hospitals. The finance minister upon receiving a tax exemption application can renew the exemption for up to five years. Additionally, foreign aviation, as well as shipping companies are exempted from paying taxes in the country if Omani aviation and shipping businesses receive respective treatment by the foreign country. Besides, Omani companies that are mainly involved in shipping are usually exempted from tax.

Also, any dividends or gains that are made from selling or disposing of securities listed on MSM are also exempted from tax. The income that is realized by the investment funds that has been established in the nation under the capital market authority law, or that has been established overseas for dealing in shares and securities that have been listed on MSM are also exempted from tax. These exemptions are usually set for indefinite periods of time. However, the tax authorities have the mandate of granting, usually on a case by case basis, foreign tax credits for specific taxes that are paid overseas by the companies based in Oman, as well as sole-proprietors.

Oman Tax Evasion and Fraud

Since tax evasions are illegal in Oman, there are a variety of penalties that are associated with it. Evading taxes in Oman leads to jail terms that can extend up to three years, as well as a maximum fine of OMR 50,000 under the new tax law amendments made by the Omani Ministry of Finance (Hasan, 2017). In addition to individuals, companies also evade taxes in Oman. In fact, out of the 300,000 companies that are registered by the Chamber of Commerce and Industry in Oman reported that only about 10% of the companies file tax returns with the government as per details published in the Official Gazette (Hasan, 2017). The tax evasion fines are mainly designed to ensure that there are voluntary compliance and self-assessments of individuals and companies regarding the evasion of tax. In essence, the amendments are mainly designed to target the tax evaders in Oman who do not submit their books of accounts to the government or those who conceal or destroy the documents that are requested by the Omani tax authorities or reveal documents that have incorrect tax liability, who after the tax law amendments now face a minimum jail term of about six months coupled with a fine of around OMR 5,0000 (Hasan, 2017).

Nowadays, the cases of financial statement fraud in the business industry have risen not only in Oman but also on an international basis. Most people in the business sector are losing millions of dollars due to the misappropriation of the financial statements (Rezaee, 2005). The major players in this activity are either the insider employees or the malicious attacks of the system by hackers. Digitization, briskly changing business models, globalization, as well as the fluid movement of capital, have all been factors that corporations leverage against to exploit gaps in global tax rules in order to avoid taxation via reduction of their taxable base, which is achieved by shifting profits to low or creating a scenario where there is no tax jurisdiction (Terra and Wattel (2005). In essence, the perpetrators are finding it easy to flag systems using the modern technology. As a countermeasure, most managers have resolved to use new technology mechanism to mitigate the fraud cases (McNally & Newman, 2008). Beasley et al. (2000) define accounting fraud as an international crime where financial statements are manipulated to compromise the financial health of the company. Therefore, the managers believe implementing internal security controls is the solution to capture the fraudulent activities or raise the alarm whenever the fraudsters attempt to compromise the financial information (Beasley et al. 2000).

Previously, there was no clause signifying that ant tax offender would be subjected to a minimum imprisonment period while the maximum fine was only a negligible OMR 5,000 compared to a current OMR 50,000 (Hasan, 2017). In addition, the maximum penalty meant for those who abstain from submitting documents and information that are requeste...