Bahrain is considering doubling the value-added tax (VAT) to 10 percent to boost state revenues and reduce its budget deficit, according to Bahraini parliamentary sources.
Bahrain is the fourth Gulf country to impose the added tax to diversify income sources, and face the repercussions of the economic crisis and the decline in oil prices.
Gulf Cooperation Council (GCC) countries, which depend on energy as a primary source of income, began in 2018 imposing that VAT, which was applied in Saudi Arabia and the UAE before Bahrain joined them in early 2019.
All six Gulf countries agreed to introduce VAT of 5 percent in 2018, after a drop in oil revenues.
Qatar and Kuwait have not yet imposed the tax.
Earlier in September, Standard & Poor’s Global Ratings said that Kuwait and Qatar do not currently have any plans to implement VAT, in line with the agreement between most Gulf countries.
Bahrain’s state news agency BNA said parliamentary and government representatives met on Sunday to discuss changing VAT as part of a review of financing options for the Gulf state as it emerges from the coronavirus pandemic.
The government reviewed how to maintain social support for eligible citizens while amending the VAT rate, the report said, without specifying the rate change.
According to Bloomberg, Bahrain plans to double its value-added tax to 10 percent, the Gulf’s highest rate after Saudi Arabia, in a bid to boost state revenue and curb one of the region’s most comprehensive budget deficits.
Manama is seeking ways to cut spending and bring its budget back into balance by 2024, a delay to the previous target, without undermining a fragile recovery, an official close to the government told Bloomberg News.
The Gulf state has accumulated a large pile of debt since the 2014-2015 oil price shock. In 2018, it received a $10 billion financial aid program from Gulf allies that helped it avoid a credit crunch.
Parliamentary sources in Bahrain said that the government plans to raise the tax comes within its attempts to avoid any direct effects on citizens and amend the goal of achieving fiscal balance to 2024.
On July 1, the decision to raise the VAT to 15 percent from 5 percent came into effect due to the impact of the coronavirus pandemic on the economy in the oil-rich kingdom.
Last April, Oman began implementing a value-added tax of 5 percent, and the government said that this tax aims to restore the financial balance in the Sultanate.
