Bahrain Parliament Approves VAT Implementation

Bahrain is set to become the third Gulf Cooperation Council (GCC) to implement the unified agreement on Value Added Tax (VAT) on goods and services.

Bahraini legislators approved a draft law on Sunday that would see value-added tax (VAT) imposed for the first time in the Kingdom, the government-run Bahrain News Agency (BNA) reported.

The House of Representatives approved a Gulf Arab agreement to introduce VAT after a royal decree ordered parliament to hold an extraordinary session on Sunday, BNA reported, without giving details of the vote.

The bill will now be sent onto the National Assembly’s upper chamber, the Shoura Council, which is expected to hold a similar session later this week. Once approved by the Shoura Council, it must be implemented by King Hamad to take effect.

The move came a few days after Bahrain’s neighbours Saudi Arabia, the United Arab Emirates and Kuwait offered a $10 billion aid package to avoid the risk of a debt crisis in the country.

Introducing VAT at a 5% rate was part of a Gulf Cooperation Council (GCC) agreement in 2018, a big step for governments that have traditionally levied little tax and relied upon instead on oil revenues.

Saudi Arabia and the United Arab Emirates already implemented the 5% taxes in January.

Other reforms, including changes to the pension system and a new subsidy program, are still pending as part of Bahrain’s efforts to fix its public finances.

The Kingdom has been hit hard by a drop in oil prices in recent years, with its dinar sliding to its lowest in more than a decade.

The Gulf state released a 33-page fiscal plan on Friday to fix its debt-burdened finances and essentially abolish its budget deficit by 2022.

The yield on Bahrain’s dollar bond due 2023 edged down 6 basis points to a seven-month low of 5.64% on Friday after the Gulf state announced the aid package from its neighbours.