Annual VAT revenue to reach BD500 million
BAHRAIN is expected to make BD500 million annually from a new Value Added Tax (VAT) due to be introduced next year, according to an expert.
However, KPMG Bahrain Tax and Corporate Services partner Philippe Norre said it was unlikely to be introduced until June 2018.
The government in February endorsed the introduction of VAT at five per cent except on basic food items and medical supplies, as well as a separate excise duty agreement which paves the way for selective tax on specific items.
It is supposed to come into force on January 1 as part of a GCC agreement reached last June in the face of low oil prices, which have severely dented national economies in the region and forced governments to generate alternative revenues.
“Based on our rough estimate and interactions with the Finance Ministry, 80 to 85pc of (the required) legislation is ready and expected to be released to the public by November,” revealed Mr Norre.
“VAT is coming to Gulf countries – and to Bahrain by June 2018.
“There is no looking back for GCC countries, with Saudi Arabia and the UAE on track for the January 2018 deadline for implementation.”
Retailers in Bahrain could benefit from delays rolling out VAT, a tax on all goods and services, since shoppers from Saudi Arabia would find it cheaper to buy goods here – at least in the short term.
“There will be a spike in spending by Saudi visitors who would buy more products,” predicted Mr Norre.
“However, if those items are more than BD200 then they have to declare it while entering Saudi Arabia.”
Qatar is expected to introduce VAT in mid to late 2018.
Finance Minister Shaikh Ahmed bin Mohammed Al Khalifa told MPs last week that parliament would have to approve VAT legislation drawn up by the government.
“According to my personal estimate, VAT at the end of 12 months of its implementation is expected to generate BD500m in revenues (for the Bahrain government),” said Mr Norre.
Meanwhile, he estimated the total cost of implementing the tax – for the government and the private sector – would reach BD80m to BD100m, adding that a new tax authority was being created that would require up to 90 bilingual staff.
He was speaking during a VAT forum yesterday at the Bahrain Chamber of Commerce and Industry, organised in co-operation with the Bahrain Association of Banks, attended by bankers and insurance professionals.
The GDN reported last week that experts believed Bahrain and other Gulf countries were likely to miss the January 2018 deadline to introduce VAT.
An absence of required regulations, a lack of preparation and other operational challenges facing businesses were cited as the main obstacles.
Experts have also suggested the rate of VAT could increase by as much as 200pc within three years of being introduced – from 5pc to 15pc.
However, Mr Norre said any such increase would have to be agreed at a GCC level.
“It will be a flat 5pc rate as agreed by Gulf countries,” he said. “If there is a change it would require changes to the GCC framework agreement by all six member states.”
