From the first of January 2019, the government of Bahrain has begun taking steps to levy 5 percent Value Added Tax (VAT). Bahrain is following the UAE and Saudi Arabia’s steps in an effort to diversify their economies. The government aims to make this introduction in a step-by-step manner to ensure a smoother transition for everyone. The slow approach to implementation is necessary since this is a new concept for Bahrain’s economy. Businesses will need time to grasp and accept the concept of Value Added Tax.
Bahrain authorities have made an extension in its VAT registration period in order to give people more time for compliance. The new deadline is now set on December 26, 2019. The previous deadline, which was on December 20, 2019 was for businesses with an annual supply that exceeded BHD5m. The new deadline is now targeting businesses with an annual supply value more than BD37,500. Any business whose annual supply value has surpassed this value in the previous 12 months or is projected to surpass this value in the next 12 months will fall in this category.
A systematic approach to enforcing compliance was carried out in order to encourage as many businesses as possible to register. Businesses that shall fail to register themselves will have to face serious consequences. Anyone who does not register within the deadline will have to pay a hefty fine of BHD10,000. Further non-compliance will lead to businesses being jailed for 3 to 5 years. These harsh penalties will further encourage compliance from everyone, ensuring that all businesses register themselves for VAT.
Bahrain is not the first country in the GCC that is beginning to focus on VAT implementation. The UAE and Saudi Arabia have also made efforts to implement VAT. The purpose behind this move is to diversify the country’s economy. Currently, many countries in the GCC have economies that rely on their oil revenues. However, the demand for oil is set to decline in the coming years as many countries have taken steps to reduce their usage of oil. This obviously spells disaster for these countries since their economy depends heavily on oil. Should these countries manage to implement VAT smoothly, they will manage to diversify their economies.
It is appreciable that the government is recognizing the challenges that many businesses will face while registering for VAT. Not everyone is familiar with all the paperwork that needs to go into this process. Therefore, the deadline has been extended 3 times in order to give businesses plenty of breathing space while they apply for VAT.
The impact of this move on Bahrain’s economy is yet to be seen. How the government guides businesses in the transition will play a major role in determining the overall outcome of VAT implementation. So far, the government seems to be making efforts in the right direction. Businesses are being provided proper guidance and the government is also taking steps to educate people about VAT.