The Bahraini government plans to double the value-added tax (VAT) rate to 10%. Bloomberg, In an effort to curb that big budget deficit.
This move reflects a similar change when Saudi Arabia tripled its VAT rate to 15% last year, but as some observers have pointed out, the timing of the rise in both countries is Significantly different..
Tax increases are a sign of the difficulties many Gulf governments face in trying to deal with the large mismatch between spending and revenue while trying to diversify their economies from their heavy reliance on oil and gas revenues.
Bahrain’s tax rate changes require parliamentary approval, which is unlikely to be a problem. NS Bahrain News Agency “We insisted on the continued support of the Shura Council for the government’s ambitious plans,” said Ali bin Saleha al-Sale, chairman of the Shura Council, in a meeting with the Government Minister on September 26. rice field.
However, it further complicates the tax situation in the region and suggests that in the future taxation may provide a fertile basis for competition between Gulf countries.
Unity proves taxation
Initially, VAT was designed to show how the six members of the Gulf Cooperation Council (GCC) (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) can act in unison. ..
When six countries signed a contract to introduce VAT in 2016, the plan was to have a tax rate of 5%, which is common to all economies. The agreement said it would be in line with the 2011 Economic Agreement, which “aims to reach a high level of economic integration” between the six countries.
But the reality is quite different. The lack of cohesiveness in the region, coupled with the various political and economic problems of each country, means that tax development took place only at the right time. Over time, the differences in approach are becoming apparent.
Saudi Arabia and the United Arab Emirates first introduced the VAT system in January 2018. Bahrain continued a year later, and Oman introduced a tax in April 2021. Qatar and Kuwait have not yet introduced it.
All four countries that introduced it introduced it at an initial rate of 5%. However, Saudi Arabia tripled its VAT rate to 15% in July 2021 and Bahrain now seems to have doubled to 10%.
Saudi Arabian Crown Prince Mohammed Bin Salman said in an interview with Al Arabiya On TV in April, the sharp rise in VAT will be temporary. “Of course, that’s a harmful measure,” he said. “This is a temporary decision. It lasts for a year, up to five years, after which things return to their original state.”
In areas where undemocratic and oil-rich governments are nervous about imposing taxes on citizens, VAT has so far been relatively indisputable to increase income from anything other than oil and gas. Proven to be the method. As it is currently practiced in many countries, some governments recognize that raising existing taxes is often much easier than introducing entirely new taxes. It is unlikely that Bahrain will finally raise the VAT rate in the Gulf.