Independent Study: PASI Pension Rate Effects on Omani SMEs (FINA6371)

This independent finance study, conducted at Sultan Qaboos University in Fall 2018, investigates the impact of the Public Authority for Social Insurances' (PASI) pension rate and other relevant factors on the overall success and growth of Small and Medium Enterprises (SMEs) in the Sultanate of Oman. The research addresses key questions regarding the role of social insurance law, the characteristics and effects of PASI pension rates, the challenges faced by SMEs in meeting these rates, and other influential factors. The study employs a mixed-methods approach, including a literature review, data collection, and a survey through questionnaires distributed to both employers and employees. It explores various aspects, such as the government's role in pension rates, the impact of pension contributions on employment, skill shortages, and the effect of taxes and minimum wage on SMEs. The findings, presented in chapters, provide an analysis of PASI's strengths and weaknesses, opportunities, and threats. The study concludes with recommendations for the government and SMEs to foster a more sustainable and supportive environment for business growth in Oman.

EFFECT OF PASI PENSION RATE AND OTHER FACRORS ON SMEs 1
Sultan Qaboos University
College of Economics and Political Science
Finance Department
Independent Study in Finance (FINA6371)
Fall 2018
A Study into the Impact of Public Authority for Social
Insurances’ (PASI) Pension Rate and other Factors on the
Overall Success and Growth of SMEs in the Sultanate of
Oman
DRAFT
Submitted by:
Mahfoodha Saleh Al Farqani
SQU ID#: 114156

EFFECT OF PASI PENSION RATE AND OTHER FACRORS ON SMEs 2
Table of Contents
Chapter 1.....................................................................................................................................................3
INTRODUCTION.......................................................................................................................................3
Research Question...................................................................................................................................4
Objectives................................................................................................................................................4
Literature Review....................................................................................................................................5
Importance of Project..............................................................................................................................6
Scope of Study.........................................................................................................................................7
Data and Methodology Used...................................................................................................................7
Main Results............................................................................................................................................7
Chapter 2.....................................................................................................................................................8
BACKGROUND OR THEORETICAL FRAMEWORK............................................................................8
Chapter 3.....................................................................................................................................................9
DATA AND METHODOLOGY.................................................................................................................9
Data.......................................................................................................................................................10
Methodology.........................................................................................................................................11
Sampling............................................................................................................................................11
Ethical Considerations.......................................................................................................................12
Questionnaire....................................................................................................................................12
Gantt chart.........................................................................................................................................13
Chapter 4...................................................................................................................................................14
MAIN RESULTS......................................................................................................................................14
Chapter 5...................................................................................................................................................22
ANALYSIS AND CONCLUSION...........................................................................................................22
Analysis..................................................................................................................................................23
PASI Strengths.......................................................................................................................................24
 Contributing to the pension scheme of employees.......................................................................24
 Empowering employees................................................................................................................24
PASI Weaknesses...................................................................................................................................24
PASI Opportunities................................................................................................................................24
PASI Threats...........................................................................................................................................24
Conclusion.............................................................................................................................................24

EFFECT OF PASI PENSION RATE AND OTHER FACRORS ON SMEs 3
REFERENCES..........................................................................................................................................25
APPENDIX..................................................................................................................................................27
Consent Form....................................................................................................................................27
Chapter 1.....................................................................................................................................................3
INTRODUCTION.......................................................................................................................................3
Research Question...................................................................................................................................4
Objectives................................................................................................................................................4
Literature Review....................................................................................................................................5
Importance of Project..............................................................................................................................6
Scope of Study.........................................................................................................................................6
Data and Methodology Used...................................................................................................................7
Main Results............................................................................................................................................7
Chapter 2.....................................................................................................................................................7
BACKGROUND OR THEORETICAL FRAMEWORK............................................................................7
Chapter 3.....................................................................................................................................................9
DATA AND METHODOLOGY.................................................................................................................9
Data.........................................................................................................................................................9
Methodology.........................................................................................................................................11
Sampling............................................................................................................................................11
Ethical Considerations.......................................................................................................................12
Consent Form....................................................................................................................................12
Questionnaire....................................................................................................................................13
Gantt chart.........................................................................................................................................14
Project Budget...................................................................................................................................15
Chapter 4...................................................................................................................................................15
MAIN RESULTS......................................................................................................................................15
Chapter 5...................................................................................................................................................23
ANALYSIS AND CONCLUSION...........................................................................................................23
Analysis..................................................................................................................................................23
Conclusion.............................................................................................................................................24
REFERENCES..........................................................................................................................................25

EFFECT OF PASI PENSION RATE AND OTHER FACRORS ON SMEs 4
Chapter 1
INTRODUCTION
SMEs (small and medium enterprises) contribute significantly to the general growth of a
country’s economy. Every country must be actively involved in monitoring the factors affecting
its SMEs in order to achieve economic growth. Some of the advantages of SMEs are, provision
of employment, contribution to the country’s GDP through payment of taxes, aiding in proper
flow of money in the country among others (Almuharrami, 2015).There are many challenges that
face SMEs such as access to finance, high taxes, high pension rates and skill shortage which
must be addressed by the government and other relevant authorities. SMEs face a risk of failing
in a volatile economy thus they need a flourishing economy to flourish so that their importance is
realized (Oman, 2011). Many businesses in the globe have resulted to laying off workers or
freezing employment due to the increased cost of operations resulting from high taxes, increased
minimum wage, increase in pension rates and an upsurge of other operational costs (Pauceanu,
2016).
The economy of Oman also enjoys the benefits of SMEs as much as other global economies.
Over the years they have contributed significant percentage of money to the country’s treasuries
in terms of taxes and offered employment to thousands of citizens. Thus the government of
Oman has taken various steps to protect its SMEs by creating a conducive business environment.
In Oman a pension rate has been set on SMEs by the Public Authority for Social Insurances’
(PASI) , this pension rate has various effects on them . Besides, businesses should be prepared to
address these challenges and device new methods of adapting (Muscat, 2013).
This project focusses on finding out the effects of Public Authority for Social Insurances’
(PASI) Pension Rate due to an increase in pension rate contribution percentage by the
government and other factors on the overall Success and Growth of SMEs in the Sultanate of
Oman. In Oman the PASI has set up pension rules and regulations. The pension given at old age
pension has to be paid on a monthly basis by the employer and the employee to the insured
employee’s pension scheme. The insured employees are covered under the social insurance law
(Muscat, 2013). When the employees reach the legal age and have completed the contribution
period they are given this pension. With a service period of 10 years the legal age is 55 years and
with a service period of 15 years the legal period is 15 years. The pension rules have employed a
pension rate calculation formula which has to be adhered to by every enterprise (Al-Farsi, 2011).

EFFECT OF PASI PENSION RATE AND OTHER FACRORS ON SMEs 5
Research Question
This project is aimed at answering the following research questions:
 What is the role of Social Insurance law on the SMEs growth?
 What is the pension rate set by PASI, its characteristics and effects on SMEs?
 What is the pension rate set by the government, its characteristics and effects on SMEs?
 What are the challenges faced by SMEs during the fulfillment of the pension rate set by
PASI?
 What are the other factors affecting the growth of SMEs in Oman?
 What is the role of the government as far as pension rate is concerned in Oman? (Albadi,
2009)
The project will seek to get answers from employers and employees on the following questions:
Employer Questionnaire
 If they support the PASI set pension rates?
 If they think the increased pension rates have affected employment?
 If they think there is a shortage of skills in Oman?
 If they think the government set taxes on goods and services are high and affect the growth of
SMEs?
 If it is difficult for SMEs to access credit in Oman?
 If they think the set minimum wage is high?
Employee Questionnaire
 If they think you are receiving enough contribution from your employer to your pension
scheme?
 Their take on the PASI set pension rates?
 If they think the increased pension rates have affected employment in SMEs?
 If they think there is skill shortage in Oman?
 If they think the minimum wage is Oman is a strain on SMEs?
 If they think government taxes in Oman have a notable effect on the success of SMEs?
Objectives
The project has various objectives which it is addressing such as:

EFFECT OF PASI PENSION RATE AND OTHER FACRORS ON SMEs 6
 To determine the role of the Social Insurance law on the SMEs growth
 To evaluate the pension rate set by PASI
 To evaluate how the set pension rate affects SMEs
 To highlight the challenges faced met by SMEs to fulfill this rate
 The other factors influencing the growth of SMEs in Oman
 How the government influences the growth of SMEs in Oman (Gonzalez, 2008)
Literature Review
Many scholars have done research on the effects of pension rate on the growth and success of
SMEs (Falls, 2013) indicates that SMEs face many challenges in their operation. For instance
when it comes to the rate of pension schemes they require government intervention to cope with
an upsurge in pension contributions for their employees in order to avoid financial difficulties.
Employers are hard hit by increased pension rates thus high labor cost since they have to
contribute more to their employees’ pension schemes thus an increase in operational costs which
reduce profits and make it hard for the SMEs to grow. The government and relevant authorities
have to monitor the pension rates and ensure they are fair to both the employer and the
employees. In order to boost the growth of SMEs the pension rate percentage contribution of the
employer should be reasonably low thus ensuring low operating expenditure (Falls, 2013).
Bradac (2013) talks about the pension rate in the United Kingdom. The government has doubled
the pension rate contribution by employers from 1% to 2%. Besides the minimum wage which
can be given to employees over the age of 25 years increased by almost 5% from 1st April 2018.
The minimum wages of workers under the age of 25 years are also on the rise. Evidently this
exercise will be costly in both the money used to make the contributions and payments and
filling out the paper work involved. Further increase in the pension rate is expected in the United
Kingdom where it will increase to 3%. This will have a huge impact on small and medium
enterprises. Some small businesses feel like some employees are unaffordable due to these
increased contributions. A survey done by Forbes shows that many SMEs in the UK are
expecting 2018 to be weaker than the previous year in terms of business due to the higher
operational costs. The United Kingdom government has employed an automatic enrolment
system whereby employers have to automatically enroll their employees who meet certain
criteria into a workplace pension. This system makes it simple for people to save for their
retirement. Thousands of SMEs are working towards the implementation or have already
implemented this system, however majority of businesses have not yet implemented it. Many
small businesses say that this system will impact bonuses and pay rise with some indicating that
it may put them out of business. Employees also are concerned that the automatic enrollment
system puts their pay rise at risk with the unemployed expressing their worry that the system will
make many businesses not able to take more staff thus render them unemployed for long period
(Bradac, 2013).
Ghazanfar (2007) indicates that SMEs have become important in Oman and the world because of
their high capacity to promote entrepreneurial skills and entrepreneurship. They are highly
flexible and quick to adapt to the changing market demands. SMEs are responsible for

EFFECT OF PASI PENSION RATE AND OTHER FACRORS ON SMEs 7
generating many jobs in both Oman and other parts of the globe. Due to these contributions by
SMEs it is essential to identify the factors affecting them with the aim of taking the necessary
actions to remove or reduce any difficulties and build up new opportunities for these SMEs. The
problems facing these enterprises range from access to finance, competition from other
established businesses, corruption especially in the government and policies made by the
government. Ghanzanfar (2007) points out the Sultanate of Oman’s policies such as the increase
in the minimum wage and the pension rates. An increase in the minimum wage strains the
finances of the SMEs since it increases the cost of labor. On the other hand an increase in the
enterprise’s pension contribution to the accounts of its employees leads to an increase in the
company’s operational expenses this as well limits the development of the SMEs. Ghanzanfar
recommends that in order for the development of SMEs to be achieved in the globe given their
contribution to economic growth and employment the following remedies must be embrace, the
government in the world economies should control corruption in order to support SMEs
efficiently, credit access should be made easier to these enterprises in order for them to develop
easily and have the capacity to take in more labor, government policies on sensitive issues such
as the minimum wage should be made in consultation with the SMEs organizations so that the
most fair percentage payments and contributions are arrived at. The world economies should take
a step in supporting SMEs so that they can be able to thrive in stiff competition (Ghazanfar,
2007).
Al-Lamki (2009) States that customers in Oman have become sophisticated over the years
leading to an intensified competition in business. Thus SMEs require a lot of intangible and
tangible resources to compete in this ever changing environment in order to realize profitability.
SMEs face substantial resource constraints in their day to day operation but exhibit excellent
entrepreneurial characteristics which lead them to success. The interaction between various
resources types in these SMEs ensure they gain competitive advantage. According to Al-Lamki
the main challenges facing SMEs in Oman are insufficiency of operational funds to cater for
costs such as remuneration and pension contributions, insufficient resources and technology,
poor market research and selling techniques among others. Laws and regulations have a
significant effect on the small and medium enterprises in the sense that there are some set rules
that make operation difficult for these businesses. Al-Lamki gives an example of the
remuneration and pension rate laws by the Oman government. The percentage of remuneration
and required pension contribution is high for some companies to afford thus they result in laying
off workers, employment freezing and in extreme situations they may get out of business (Al-
Lamki, 2009).
A recent study conducted in Muscat on the skills in the market entitled ‘The Middle East Skills
Report’ found that majority of the people in Oman believe that the country has skills shortage.
These respondents include employers, employees and job seekers. Most job seekers cited the
reason for not securing jobs as lack of knowledge on the skills that are in high demand. Lack of
enough skills in the market affects the implementation of ideas by SMEs and makes work
difficult thus reducing profitability (Rao & Syed, 2007).

EFFECT OF PASI PENSION RATE AND OTHER FACRORS ON SMEs 8
Importance of Project
This project is essential since it highlights the benefits of SMEs to an economy’s growth in this
case the Oman economy. The project focusses on the effects of the PASI pension rate and other
factors on the general growth and success of SMEs. The findings from the project can be used in
decision making with the aim of boosting the growth of SMEs in the Sultanate of Oman
(Thompson & Toledo, 2010). The project will enhance the existing research on the factors
affecting the growth of SMEs in Oman and the globe with a particular focus on the effects on
increase in pension rate on them. Most of the prior studies do not give focus on pension rate and
its effects.
Scope of Study
This project is based on finding out the effects of Public Authority for Social Insurances’ (PASI
) p Pension Rate and other factors on the overall Success and Growth of SMEs in the Sultanate
of Oman. The project focusses on the SMEs based in the Sultanate of Oman and seeks to
research on the factors affecting their growth with the main focus on the pension rates set by the
PASI. The project deals with aspects affecting SME growth comprising high government taxes,
limited skills in the market, high set minimum wage, high pension rates and difficulties in credit
access (Bohle & Greskovits, 2016). The research consults a large amount of materials by using
both secondary and primary data. It gathers data from the employers and employees in the SMEs
as well as gathering data from the Riyada Public Authority of Small and Medium Enterprise
Development and PACI funds records.
Data and Methodology Used
The Data used in this project has been gathered from both primary and secondary sources. Six
SMEs have been involved in this study and a thorough analysis done on the data gathered from
them. The SMEs were selected by a selection criteria of non-probability sampling. The
information gathered from these SMEs has been analyzed using Microsoft excel in order to
discover trends and make conclusions. Charts have been developed to show the percentages from
the responses given by the employers and employees from the SMEs. Besides, secondary data
from these SMEs has been consulted in order to paint a clearer picture on the factors affecting
SMEs growth (Wasmer, 2016). Besides there is data gathered from the Riyada Public Authority
of Small and Medium Enterprise Development and PACI funds records which is used alongside
the primary data to determine the factors affecting the growth of SMEs in the Sultanate of Oman.
Main Results
The project results based on the reactions from employers, employees and existing records have
s proofed that the pension rates set by the PASI are quite high and affect the operation of the
small and medium enterprises. Due to the high contributions made by the SMEs to the pension
schemes of their employees the labor cost is increased thus leading to high operational costs.
This leads to low profits which result to problems such as low employment rates with some

EFFECT OF PASI PENSION RATE AND OTHER FACRORS ON SMEs 9
SMEs freezing employment since they cannot be able to afford the labor cost. Increase in
operational costs in Oman has made it difficult for many SMEs to thrive forcing others out of
business. There are also other factors affecting the operation of SMEs such as high government
taxes, limited skills in the market, high set minimum wage and difficulties in credit access (Al-
Yahyae, 2016).
Chapter 2
BACKGROUND OR THEORETICAL FRAMEWORK
There are many factors affecting the growth of SMEs in the Sultanate of Oman amongst which
are the pension rates set by the PASI, government taxes, minimum wage, and shortage of skills
among others. This project analyses these factors with the main focus on the pension effects of
the set pension rates on the SMEs. Most of these factors affecting the growth of SMEs are
influenced by the government policies, rules and regulations (Al Yahyae & Walter, 2010).
Increased taxes over the years on goods has made the cost of operation for SMEs in Oman high.
The graph below shows that the government has been increasing taxes on goods and services
over the years.
Graph showing the tax on goods and services in Oman over the Years

EFFECT OF PASI PENSION RATE AND OTHER FACRORS ON SMEs 10
The graphs shows a steep tax increase thus increased SMEs operational costs. An increase in
operational costs affects factors such as increase in wages, pension, allowances, employment and
other factors due to reduced profits (Schwarz, Karolyl & Salem, 2008).
Increased operational costs due to increase in the price of commodities such as electricity is a
major factor affecting SMEs in Oman. For example the new introduced taxes and fees for
businesses and individuals based in the Oman. The Municipality introduced a 2% increase in
electricity prices based on the business and individual usage. This study will also seek to proof if
there is an increase in the operational costs of SMEs in Oman (Al-Balushi, 2011).
There is a skill shortage in the local market which makes implementation of many ideas by
SMEs difficult. Majority of the job seekers in the country have not been educated well on the
skills that they require to secure jobs thus they do not find jobs easily. Many SMEs find it
difficult to operate due to this fact of limited skills. The skills comprise communication skills,
negotiation skills, leadership skills, ability to work under pressure creativity, technical skills, and
efficiency among others. In most cases you find workers possess just some of them thus they are
not skilled enough for the potential jobs. This study will furthermore seek to proof if indeed there
is skill shortage in Oman (Schamidt, 2008).
There is increased market competition in Oman leaving SMEs at a disadvantage. Large
organizations compete with the same market with small and medium sized enterprises, since the
large organizations have the financial advantage it becomes difficult for the SMEs to thrive thus
most of them get out of business (Ghazanfar, 2007).
The Sultanate of Oman under the PASI which is the body mandated with setting up the pension
rate has set up a formula for the calculation of pension rate contributions. The formula is:
3%x Av. gross salary of the last five years x Number of full contributions years under the insurance
scheme (Rajasekar, 2014).
This formula is used by all businesses in the pension rate calculation. Many SMEs find the contributions
made to the employee’s pension scheme to be quite high thus increasing the general operational costs. On
the contrary many employees feel that the contributions made by their employers are less and should be
even more. The PASI on its side feels that the set pension rate is fair to both the employers and the
employees. This study is pursuing to gather primary information and secondary information proof
on the pension rate effects on the SMEs. The study will also gather information from SMEs to
from factual conclusions.

EFFECT OF PASI PENSION RATE AND OTHER FACRORS ON SMEs 11
Chapter 3
DATA AND METHODOLOGY
Data
The study has gathered data from six different SMEs (small and medium enterprises) with the
aim of determining the effect of PASI and government pension rates on these businesses. The
data has been gathered through questionnaires given to the employers and the employees and the
secondary data available in these SMEs. The data has been analyzed and a comparison made on
the findings from the various SMEs (Eme, Uche & Uche, 2014)
The Data used in this project is given below:
Employers
Employer
ID
a. Do you
support the
PASI set
pension
rates?
b. Do you
think the
increased
pension rates
have affected
employment
?
c. Do you
think there
is a
shortage of
skills in
Oman?
d. Do you
think the
government
set taxes on
goods and
services are
high?
e. Is it
difficult for
SMEs to
access
credit in
Oman?
f. Do you
think the
set
minimum
wage is
high?
1st No Yes Yes Yes No Yes
2nd Yes Yes Yes Yes Yes No
3rd Yes No Yes Yes No No
4th No Yes Yes Yes Yes Yes
5th No Yes Yes Yes Yes Yes
6th No Yes Yes Yes yes No
Yes 2 5 6 6 4 3
No 4 1 0 0 2 3
Employees
Employee’s
ID
a. Do you
think you
are
receiving
enough
contribution
b. What is
your take
on the PASI
set pension
rates?
c. Do you
think the
increased
pension rates
have affected
employment
d. Do you
think there
is skill
shortage in
Oman?
e. Do you
think the
minimum
wage is
Oman is a
strain on
f. Do you
think
government
taxes in
Oman have
a notable

EFFECT OF PASI PENSION RATE AND OTHER FACRORS ON SMEs 12
from your
employer to
your
pension
scheme? ? SMEs?
effect on
the success
of SMEs?
1st Yes Increase Yes No Yes Yes
2nd No Increase No No No Yes
3rd Yes Contented No Yes No Yes
4th Yes Increase No No Yes No
5th Yes Decrease Yes Yes No Yes
6th No Contented No Yes Yes Yes
7th Yes Increase Yes No Yes Yes
8th No Contented No No Yes Yes
9th No Increase No No No Yes
10th Yes Increase No Yes Yes Yes
11th Yes Increase No No Yes Yes
12th Yes Increase Yes Yes No Yes
Yes 8 4 5 7 11
No 4 8 7 5 1
Increase 8
Contented 3
Decrease 1
Methodology
For the success of the study various methods were employed from the data collection step to the
data analysis and result presentation stage. The data used in this project has been collected from
both secondary and primary sources using a structured approach (Albadi, 2009). A semi
structured questionnaire and in depth interviews have been used on the SMEs personnel. Data
has been collected from the six SMEs financial reports with focus on annual pension amount and
pension contribution. Data has been gathered from The Public Authority for Small & Medium
Enterprises Development (Riyada) and PACI funds as well (Ghanzanfar, 2007).
Sampling
There are ten SMEs which have been involved in this project. The process of non-probability sampling
was used to select these SMEs in order to ensure a more practical and accurate representation of the
study objectives.