Dubai: Bahrain plans to double its value-added tax to 10 per cent, the Gulf’s highest rate after Saudi Arabia, in a bid to curb one of the region’s widest budget deficits.
The Gulf’s smallest economy is seeking ways to cut spending and bring its budget back into balance by 2024, an official close to the government told Bloomberg News. It isn’t clear when the higher VAT rate will be implemented.
Saudi Arabia tripled its VAT rate to 15 per cent last year to bolster state revenue when oil prices slumped. The UAE and Oman imposed a 5 per cent VAT under a common 2018 framework by the GCC. Kuwait and Qatar have yet to implement the tax.
Bahrain is under fiscal strain despite a $10 billion bailout package pledged by its wealthier neighbors in 2018. That package came under the condition that Bahrain implement fiscal reforms to rein in its budget deficit. The aim was to balance the budget by the end of 2022. That timetable had to be put on hold in 2020 as the government focused on helping the economy weather the double shock of COVID-19 and low oil prices.
Budget shortfalls
Bahrain’s budget shortfall is projected to drop to 9.1 per cent of GDP this year from 18.3 per cent of GDP in 2020, according to the IMF.
A statement published Sunday on the Ministry of Finance and National Economy’s website confirmed that the government will delay its balanced budget target until 2024 and was considering raising VAT, but didn’t provide details.
The country may also look at selling stakes in some of its energy and infrastructure assets as a way to raise new sources of income, Oil Minister Mohammed bin Khalifa Al Khalifa said in an interview with Bloomberg in May.
Like many other countries, economic growth is bouncing back as Bahrain overcomes some of the fallout from the pandemic. Real GDP growth reached 5.7 per cent year-on-year in the second quarter while real non-oil growth hit 7.8 per cent during in that same time.
