Oman issued a royal decree to become the first country in the Gulf to impose a personal income tax, its tax authority said on Sunday, as the small oil producer works to diversify its revenue stream.

Oman, among the smaller Gulf economies, launched a medium-term fiscal programme in 2020 to reduce public debt, diversify revenue sources and spur economic growth, which has improved public finances.

The sultanate, which still remains largely reliant on oil revenue, will impose a five per cent tax on taxable income for individuals earning over 42,000 Omani rials ($109,091) per year starting from 2028, according to the decree.

“The law also includes deductions and exemptions that take into account the social situation in the Sultanate of Oman, such as education, healthcare, inheritance, zakat, donations, primary housing,” the country’s tax authority said in a statement.

According to the state-run Oman News Agency (ONA), the plan also contributes to the objectives of Oman Vision 2040 by diversifying income sources and reducing reliance on oil revenues, with targets of 15pc of GDP by 2030 and 18pc by 2040.

The Gulf country added that the tax would apply to about 1pc of the population.

The Omani tax authority stated that the implementation of the tax “follows an in-depth study assessing its economic and social impact, based on income data from various government entities”, according to ONA.

Meanwhile, observers said that the introduction of income tax signalled economic maturity.

“That the rate is competitive internationally will ensure that Oman remains a country of choice for international professionals,” said David Daly, a partner at Gulf Tax Accounting Group, speaking to Gulf publication The National.