Anti-avoidance measures ‘likely ahead of VAT rise’

MANAMA: Bahrain is likely to introduce anti-avoidance measures to prevent taxpayers from obtaining an artificial advantage in the run up to the doubling of value-added tax (VAT), an expert has said.

George Campbell, the head of tax at advisory firm Keypoint told a webinar that beyond the anti-avoidance measures, he is expecting to see transitional rules to cover things like continuous supplies that may require the apportioning of supplies between two different standard rates of VAT.

According to him the Saudi experience is going to be a critical pathfinder for Bahraini businesses – although he cautioned that no two rate changes are ever exactly the same: “This will be the fourth rate change that I have been through – as well as leading a large professional services firm through the tripling of the VAT rate in Saudi Arabia in 2020, I was working as a tax professional in the UK when it first cut the VAT rate to 15pc and then increased it to 20pc.”

The Saudi experience is the most valid for key decision makers at Bahraini businesses, asserted Mr Campbell, adding that that key decision makers at businesses in Saudi Arabia, the UAE, Bahrain and Oman should be familiar with the concept of grandfathering, where the previous rate of VAT (or no VAT) can be applied for a set period.

Saudi Arabia allowed VAT to continue to be charged at 5pc on supplies made between July 1, 2020 and June 30, 2021 in very specific circumstances: the date on which the VAT rate change was announced – May 11, 2020 – was a key factor.

This concession was applied through invoice and contracts reliefs – both optional for suppliers.

Mr Campbell said that the date at which Bahrain’s businesses could form a ‘reasonable expectation’ that the rate would increase from January 1, 2022 is September 27, 2021 – the date when the rise in the standard rate from 5pc to 10pc was announced.

“If Bahrain implements similar transitional measures to Saudi Arabia’s, invoice and contract reliefs should apply with a 27 September 2021 cut-off. As we saw in Saudi Arabia, the application of relief was optional for the supplier: some suppliers chose not to apply relief, either because the customer could not prove eligibility or fear that the GAZT (now ZATCA) would assess them for the difference – or both. With the benefit of hindsight, that may have been prudent as we have seen ZATCA issue assessments and apply penalties for what it considers to be incorrect application of transitional provisions.”

Mr Campbell pointed out that there are other impacts key decision makers may want to assess, including pricing considerations, system and documentation updates and VAT optimisation, with different businesses in different sectors likely to be impacted in different ways.

“If your business is in the financial or real estate sector, you will have exempt supplies – and so you are going to see an increase in unrecoverable VAT.

“Equally, if you are an insurance company – or offer maintenance services – you might have to carefully apportion your supplies between the old and the new standard rate of VAT.”

Non-registered businesses – like the local khabbaz for example – are likely to see their costs increase – which tends to lead to higher prices for consumers.

“VAT is of course a consumption tax – with the ordinary man or woman in the street bearing most of the ultimate cost,” he concluded.


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