MANAMA: The Kingdom of Bahrain is planning to introduce 2% to 5% value added tax by the end of Q2 this
“The GCC countries are expected to sign the framework agreements to introduce VAT at a rate between 3-5% by the end of Q2, 2016. Draft legislation is then expected in the following months, providing practical guidance and executive regulations regarding the new VAT law,” said Mr. Craig Richardson, Partner and Head of Tax and Corporate Services at KPMG Bahrain.
KPMG in Bahrain held a seminar session on Sunday on the value-added tax (VAT), whereby Partner and Head of Tax and Corporate Services at KPMG in Bahrain Mr. Craig Richardson stressed the importance of corporates’ readiness to adopt this development that will lead to a significant change in the business environment. Around 200 delegates attended the seminar, which was held at the Diplomat Radisson Hotel.
“Once rolled out, VAT will affect sales of goods and services in Bahrain with limited exemptions and consumption tax relief. However, there will be a right for businesses to claim a credit for VAT paid on their expenditures relating to their business activities. Therefore, it is important for businesses to start reviewing and considering their business models to offset this anticipated change”, Richardson added.
Although the implementation of VAT will increase the cost of doing business, revenues gained from VAT will be ploughed back into the economy. This will also contribute to enhancing the overall business conditions, while maintaining the country’s position as a business friendly hub.
Bahrain has long been considered an attractive low-tax environment, especially for business looking to invest in the Northern Gulf region. Generally, the introduction of a broad based VAT at a low rate is unlikely to deter investment into Bahrain, or the GCC Region. The appeal of the Region stretches much further than its low-tax status. Infrastructure development, access to high-potential growth markets in Africa and Asia, free-trade zones, competitive labor costs, few trade barriers, no exchange controls with USD pegged currencies, as well as economic and political stability, are all factors to be considered.
Richardson also confirmed that the implementation of VAT at a low rate will not have a recurring inflation impact unless the VAT rates are increased. Some businesses may choose to absorb the VAT cost, wholly or in part, to limit the impact on consumers.
