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Bahrain mulling on increasing value-added tax to 10%

This move will help the government to boost revenues and curb deficits

Bahrain is considering doubling value-added tax (VAT) to 10 percent to boost state revenues and reduce its budget deficit in one of the gulf’s widest budget deficits as the economy begins to recover from the Covid-19 pandemic, according to a Bahraini parliamentary source and a source close to the government told the media.

The Gulf country decided to raise the VAT after detailed spending and revenue review, as the government looks for ways to rebalance its finances without disturbing the economy in recovery mode. As estimated by the International Monetary Fund (IMF), Bahrain’s budget deficit will contract by half this year after oil prices decrease and the Covid-19 pandemic boosted it to a record 18 percent of economic output in 2020.

Last year, Bahrain’s economy contracted by 5.4 percent as the pandemic hurt vital sectors like energy and tourism. The small Gulf state has accumulated a considerable amount of debt since the 2014-2015 oil price shock. In 2018, the country received a $10 billion financial aid programme from its neighbouring countries that helped them avoid a credit crunch.

Bahrain introduced its 5 percent VAT law in 2019 as a part of its plans to fix its finances and increase non-oil revenues, and currently, it is being discussed between the government and parliament as to how it can be amended.

Sources mentioned that it is imperative that the parliament approves such a change in the law as the government was trying to find ways to protect people with low incomes in its country.

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