The shipping and logistics industry in Oman plays a pivotal role in the development of the economy. According to Davis Kallukaran, Managing Partner, Crowe Oman, it’s worthwhile to understand shipping and logistics industry and analyse the VAT implication on the same. He says the ports of Salalah and Duqm are the gateway to economic diversification and facilitate international transportation, and introduction of VAT is going to impact them. Various dynamics prevalent in the industry, mainly, (1) the mode of transport and (2) the place of supply of the goods needs to be evaluated to ascertain the application of VAT. He added
Mode of transport consist of transportation means by sea, air and road. The place of supply will be either within the Sultanate or international or intra-GCC. The interpretation of the Law gives three treatments for the transportation businesses namely;
(1) zero-ratings to the international and intra-GCC transport of goods,
(2) local transportation of goods will attract 5% VAT. However, local coastal runs for international transportation will be zero-rated, and
(3) vessels used for commercial purposes to transport goods are zero-rated. Any use of vessel for recreation, sports or leisure will be standard rated.
The rule in the law appear to be very simple but the logistic industry is too complex and will see practical VAT implementation challenges. There are many players participating in transporting goods from point of origin till the point of consumption like shipper, consignor, freight forwarder, agent, vessel operator, container operator, transport operator and ports. Each of these participant in the supply chain need to evaluate the impact of VAT on the value added by their services rendered during the movement of goods.
There can be situation where the transactions need to be analysed on case to case basis to ascertain VAT implication. For instance, washing & cleaning and repairs & maintenance services for containers may qualify as services relating to the goods and not transport-related. Such activities are not required to undertake transportation and hence will attract VAT. However, the place of supply rule will also need a check. If the place of supply of these services are in Oman, then VAT will apply. Another scenario can arise, whereby container repair is undertaken by the port as the vessel cannot move until the container is repaired. In such case, the repair is undertaken in order to initiate the voyage (necessary for undertaking transportation) and hence will be zero-rated.
In international transportation, it is very common to witness multi-leg transaction wherein many players are involved in transporting goods. Hence, it is essential to assess each leg as an independent transaction and ascertain if all legs are zero-rated. For instance, a freight forwarder in Oman has to transport goods from the supplier in Oman to the port for international transportation. However, the freight forwarder shifts goods from one warehouse to another warehouse in Oman and also pays storage charges and packaging charges, then these charges may be taxable unless it is established that these are essential for international transportation. The point to be examined is the ‘necessity of the service’ for the transportation of goods. For example, terminal handling charges, documentation charges and customs charges can be regarded as essential for undertaking transportation and are therefore zero-rated.
As per the Oman VAT law, the place of supply of the transportation service is the place where transportation begins. In the case of cross-border trade, where transportation originates and completes outside Oman for a customer in Oman, the place of supply would be regarded as outside Oman and hence regarded as out of scope for VAT.
According to Aastha Rangan, Director VAT advisory, Crowe Oman, companies in shipping and logistics industry should not sit back and delay VAT impact assessment under the belief of transportation being zero-rated. She advises businesses to start reviewing their business transaction immediately from VAT viewpoint.