MANAMA: New business opportunities for entrepreneurs could be the positive outcome of the proposed value-added tax (VAT) in the country, according to an expert.
Bahrain’s small and medium enterprises (SMEs) and entrepreneurs who are skilled in the VAT laws and its implementation could become “tax consultants” who can help businesses with their book keeping and VAT filing, said UAE-based Nuummite Consulting senior partner Haytham Bata.
VAT is a tax on the consumption of goods and services and has been set at five per cent across GCC countries, which is among the lowest in the world. Saudi Arabia and the UAE implemented VAT at the start of this year, while Kuwait’s parliament budget committee announced in May that it will not implement VAT before 2021 but will push ahead with introducing excise tax on tobacco, carbonated and energy drinks. Bahrain has already imposed such an excise tax and is expected to roll out VAT by the end of this year.
“Countries have public introduction to the VAT, which talks of implementing and the law, but for non-technical person this will make no sense, so you need someone to read the law and help in understanding it,” said Mr Bata.
“You also need people to help businesses, mainly SMEs, do their book keeping accounting and VAT filing.
“This is a window for Bahraini SMEs or entrepreneurs to supply accounting services like consultants who will do their book keeping or maintain the accounts and filing.
“It will re-organise the market, will bring a lot of businesses to the surface and it will create opportunities for small business to offer VAT support services and accounting.”
Mr Bata was speaking to the GDN on the sidelines of a seminar on the implications of VAT on the travel and tour sector organised by the Association of Bahrain Travel and Tour Agents (ABTTA) at the Gulf Hotel Convention and Spa. The session along with Sharaka Business Consultants explained the steps that business should adopt to be ready to embrace VAT.
Mr Bata reiterated that Bahrain’s SMEs are “way behind” in their understanding of VAT.
“In my assessment, some of the businesses have already started the process and also went through procedures to be done.
“Especially the businesses that deal with Saudi Arabia and the UAE – they are ready from a system point of view for the VAT implementation.
“But the SMEs, unfortunately, a lot of them think that the VAT is not related to them and will have no impact on them, but in reality, VAT will have an impact on each and every business.
“The threshold for registering for VAT is very low – like $100,000 annually (of supply) which is about $300 a day and in terms of turnover in Bahrain it is about BD60 (a day) and even a grocery shop in the neighbourhood has this turnover.
“So eventually each and every business will be registering for VAT, but the SMEs are unaware.
“Even in Saudi Arabia where VAT has been implemented for one year now, the SMEs think themselves out of the scope, which is not the case.
“The preparations include the system – SMEs should have a proper accounting system.
“They need to have proper book keeping – unlike the “off the record” ways, because penalties are high with VAT.
“SMEs maintain no clear line between personal and business expenses, which needs to change from a VAT point of view, to understand what they can claim or not.
“On the understanding of VAT, the SMEs are way behind, and they are not thinking that this subject will affect them.”
Bahrain last year endorsed the introduction of VAT at 5pc except on basic food items, medicines and medical supplies. The decision to introduce VAT at a rate of 5pc means products or services that currently cost BD100 will increase in price to BD105 after it takes effect. VAT implementation will be applied on transactions such as car sales, telephone bills, restaurants or hotels, hiring services of accountants or lawyers.
Experts say Bahrain is expected to make BD500 million annually from VAT revenues, which is crucial as the country’s budget deficit stood at around $3.6 billion last year.