Question

Case Study: 3

Mr. Salim Humaid Al Balushi is a successful entrepreneur in Ibri. He owns an Balushi Plastic Products LLC and supplies plastic covers in different shape and sizes to different hyper markets in Oman. He appointed his relative Mr. Fahad Al Balushi, who recently completed his Bachelors degree in accounting from Ibri College of Technology as an Internal Auditor, to look after the accounting records of his company. Mr. Fahad has an immediate task of submitting the tax returns of the company at the earliest. He started internal audit of all the accounting records available so far in the company. As per the existing information, the previous accountant prepared an incomplete income statement for the year ended 31st Mar 2020, which seems to be having many flaws. This statement shows a gross profit of OR 160,000 and some net earnings of OR 28,000 for the current tax year. In his investigation, Mr. Fahad realized an amount of investment of OR 51,000 used for extending and modifying the existing manufacturing plant with latest equipment’s were wrongly expensed by the previous accountant. He further investigated that, this latest equipment’s shall be treated as Heavy Equipment as per Oman Tax Laws. All of these modifications were ready by 1st July 2019 and started production for the company. On the very same day, Mr. Salim also purchased a warehouse building in Nizwa costing OR 25,000, for the convenience of storage and free distribution of goods to various parts of Oman. This a permanent structure, built with concrete roof and has appropriate storage facility. He made a grand inauguration of this new warehouse and spend OR 12,000 for it. Mr. Fahad realized that only an amount of OR 9,000 may be approved as expenses by the Director General for Taxation for the above inauguration.

Due to a short circuit, there was a fire accident in the company office buildings, which destroyed some of the office electronic equipment cost OR 8,000. The company office building was fully insured and received a coverage of OR 5,000 towards this damage. The previous accountant expensed the loss but did not record the recovery in the books. Commission paid to the sales director worth OR 8,000 was wrongly recorded in the books as OR 800 and there was no recovery of previous year’s (2018/19) loss of OR 5,000 was recorded in the books.

Looking at the above mistake, help Mr. Fahad in preparing the correct taxable income and tax liability of Mr. Salim for the tax year 2019/20, so that, he can avoid fines and punishments for wrong submissions.

Answer 1

Tax rates applicable to companies which are wholly owned by Omanis are specified as follows:

--The first RO 30,000 of the taxable income is tax exempted.

--Amounts exceeding RO 30,000 shall be taxed at the rate of 12%.