Bahrain has increased 10 percent value-added tax (VAT) for all goods that are taxable by law as the Kingdom ringed in the year 2022 with renewed hope amid concerns over the new Omicron variant.
The increase comes two years after Bahrain implemented a 5 percent VAT on taxable items in an effort to reduce the budget deficit and re-stabilize the Fiscal Balance Program, which has been hit by COVID-19 pandemic.
American credit rating agency, S&P Global Ratings estimated that the VAT increase could contribute receipts of about 3 percent of the gross domestic product (GDP) in the next few years, up from about 1.7 percent in 2021.
The supplies that are subject to the zero-rate (eg. basic food, construction of new buildings, oil and gas, healthcare, and education) or exempt from VAT (eg. real estate and certain financial services) will be unaffected.
The VAT hike does not apply to 94 “basic” food items and over 1,800 non-taxable government services. The non-taxable items include water, milk, meat and fish, oils, eggs, sugar and salt, infant foods, bread products, vegetables and fruits, coffee beans, tea and cardamom, and wheat and rice. In addition, Bahrain exempts 1,820 government services from VAT.
However, a 5 percent VAT rate will apply to standard-rated goods or services supplied before the 1st of January 2022. This is valid even if the invoice is issued or payment is made on or after the 1st of January 2022.
According to the statement, “one could continue with 5 percent VAT until the end date of the contract, or contract renewal or amendment date, or a year from the 1st of January 2022. But, if the contract period exceeds 2022, the VAT rate will change to 10 percent on the supplies spanning after 2022.”
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