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Bahrain to introduce VAT by end of year, government says

Bahrain is soon to follow its Gulf neighbours by introducing VAT [Getty]

Date of publication: 21 February, 2018

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Bahrain is set to become the next Gulf state to introduce value-added tax after Saudi Arabia and the UAE, as it seeks to move beyond oil revenues.

Value-added tax will be introduced in Bahrain by the end of 2018, its finance minister said.

"We'll be working with parliament on VAT and aim to have everything set up by the end of 2018," Sheikh Ahmed told an investment conference in Manama on Wednesday, without giving a firm date for when the tax would be launched.

The Gulf state, like its neighbours, is looking to diversify its economy beyond oil as low crude prices continue to dent its finances.

It originally planned to introduce VAT at a five percent rate at the beginning of this year, at the same time as Saudi Arabia and the UAE, but the plan slowed after resistance from some members of parliament.

Last month officials also said the government would not proceed with new austerity steps until parliament agreed on a new system to compensate citizens for a higher cost of living.

"We have a system of consensus building, such as parliament. It's vital for Bahrain to go through that process as we diversify," Sheikh Ahmed said.

He added that the government was diversifying revenues "not in a panicked way, in a controlled way" and there were no new plans to cut the subsidies it pays to keep down consumer prices of fuel, food and services.

Earlier this month, head of the International Monetary Fund Christine Lagarde welcomed the "promising" reforms of some Arab states, but said more sweeping changes were needed.

Nearly all Arab states have posted budget deficits in the past few years, and economies grew at just 1.9 per cent last year, half the global rate.

Government expenditures remain high in the Arab states, particularly the Gulf, where they exceed 55 per cent of GDP.

Kuwait, Oman and Qatar also planned originally to introduce VAT last month but have not done so.

For Kuwait and Oman domestic political concerns are one reason. Regional economists now think those three countries may impose the tax in 2019.

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