VAT's the way to do it!

VAT was implemented in Bahrain from January 2019 at a rate of 5%


MANAMA: Bahrain has no plans of hiking the value added tax (VAT) rate in the near future, a virtual tax summit heard.

Speaking in his capacity of professional services firm KPMG in Bahrain managing partner, Jamal Fakhro said the government has declared it does not intend to raise the indirect tax that is levied on goods and services.

VAT was implemented in the country from January 2019 at a rate of five per cent.There was widespread speculation that Bahrain would follow Saudi Arabia which tripled its VAT from five to 15 per cent this July, as it took measures to offset the impact of the Covid-19 pandemic and the resulting low oil prices on its economy.

“There are no plans to increase VAT in Bahrain,” he said.

Delivered during the online meeting organised by KPMG, Mr Fakhro’s statement should reassure businesses and individuals alike, also hit by the Covid-19 crisis.

Mr Fakhro, who is First Vice-Chairman of the Shura Council, also said that Bahrain has one of the most ‘consumer-friendly and welfare-driven VAT regimes’ in the GCC, resulting in a minimal impact on the cost of living.

Rolled out in three phases last year by the National Bureau for Revenue (NBR), the tax system in the country has the GCC’s highest number of items in the zero-rated and exempt lists including basic food, construction of new buildings, education and healthcare services, local transport services, as well as oil and gas and derivatives.

Acknowledging the national tax authority for the support provided in the marketplace, he added, “I would like to thank the NBR for their professionalism and the success in implementing the new tax system in Bahrain.”

Mr Fakhro also praised the government for its Covid-19 relief package amounting to BD4.3 billion, which at 30pc of the GDP was among the highest in the world and would go a long way in supporing businesses and livelihoods.

The three-day seminar was led by the firm’s head of tax and corporate services Philippe Norre, who assessed that the pandemic would said shrink the government’s VAT revenue this year, which was initially projected to be much higher than the BD250m collected last year.

Citing NBR data, Mr Norre said as of the end of 2019, 18,000 companies and individuals had registered as tax payers, of whom 1,000 were filing monthly returns, 9,000 were filing them quarterly and the remaining 8,000, being smaller, were filing them annually.

He said data for the current year was not yet available.

According to Mr Norre, neighbouring Oman, which announced on Monday that it would start levying VAT at the rate of 5pc within six months, was likely to adopt the Bahrain model as opposed to the Saudi or UAE one.

VAT is not only about compliance and risk management and Bahrain’s tax laws and regulations also give businesses a legal window for opportunities to optimise cash flow and the tax relationship across the supply chain, added Mr Norre.

“A proper and tailored roll out of these opportunities delivers business competitiveness and process optimisation in the relationships with NBR, amongst others,” he said.

With more than 100 tax and finance professionals across Bahrain participating, the summit themed ‘Reimagining Tax in the Kingdom of Bahrain’, provided participants with insights into the present and the future of tax in the country.

The new Economic Substance Rules (ESR) was another area of focus.

Entities undertaking one or more of the relevant activities must meet the economic substance (ES) tests – prove that they have genuine commercial operations and management in Bahrain – and lodge the ES Return within 3 months from the financial year-end.

KPMG in Bahrain tax partner Mubeen Khadir said: “Tax authorities in developed countries remain focussed on the risks that arise from corporate structures that shift income or profits to entities in jurisdictions with no or low tax regimes.

“The implementation of ESR demonstrates Bahrain’s commitment to the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion Profit Shifting (BEPS) Action 5 on countering harmful tax practices.

“The key challenge now is for entities carrying out relevant activities to show they have ‘adequate’ substance in Bahrain to justify the income they generate.”

The speakers also provided a deep dive into the NBR guides, tools and resources that were available for practitioners and businesses; while also providing pragmatic advice and clarifications on some of the key issues and challenges faced by businesses in the marketplace in relation to VAT.

The firm’s tax director Ali Al Mahroos added, “The release of public clarifications and guides mean that many companies may need to closely consider VAT treatments previously adopted.

“This is particularly likely if businesses have implemented VAT internally and have not had an external review at any stage of the implementation process.

“Businesses will need to understand any changes to ensure they comply with the NBR’s expectations, not simply what is written in black and white in the law.”

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