In January of this year, the Kingdom of Bahrain introduced Value Added Tax (VAT) for goods and services. We take a look a look what VAT is and how this has impacted the Kingdom of Bahrain thus far.
In the gulf, VAT is relatively new, with Saudi Arabia and the UAE being the first Gulf countries to introduce VAT on January 1, 2018 - at a rate of 5%.
Following Bahrain’s implementation in January 2019, Oman followed with Kuwait considering the introduction of VAT in 2021.
What is VAT?
VAT is a tax based on the value of goods and services when selling to another business or consumer. VAT is calculated as a percentage of the value of goods or services. Any business in the Kingdom of Bahrain providing goods and services, must now by law, charge VAT as part of the transaction.
How does VAT affect me?
VAT directly effects both the business and consumer, but the proceeds of which help provide a country’s government generate revenue to help invest in many things eg. Infrastructure and education.
VAT will directly affect the consumer since the cost of goods and services will increase. The reason for this is due to businesses seeking to reduce the impact caused to decrease in their profit margin for each transaction.
What is the current impact of VAT in Bahrain?
The International Monetary Fund (IMF) have praised the Kingdom’s introduction of VAT. In addition, the fiscal support to tune of $10billion from regional allies (KSA, Kuwait and UAE) has helped address some key fiscal challenges. Whilst official figures have not been announced the early indication is that the implementation of VAT has helped positively contribute to the Kingdom’s economic position.