Government Opposes VAT Funding Shift for Unemployment Fund

TDT | Manama

The Daily Tribune - www.newsofbahrain.com

Email: ashen@newsofbahrain.com

A parliamentary proposal to shift funding for the Unemployment Fund from payroll deductions to value-added tax (VAT) revenues has prompted a stark warning from the government. Officials argue that this change could destabilise the unemployment insurance system and exacerbate the strain on the state budget.

The bill seeks to eliminate unemployment insurance deductions from insured individuals and allocate 1% of VAT revenues to the Unemployment Fund.

The government argues that this approach undermines the core principles of the unemployment insurance system, effectively turning it into a social security scheme that could jeopardise the public budget.

In its explanatory note, the government highlighted that the constitution requires the state to provide necessary social security for citizens facing various challenges, including unemployment. This duty supports the principles of social solidarity that are vital for society. The government stated: ‘The state does not solely bear the requirements of social insurance, nor can it alone shoulder its burdens without others,’ stressing the importance of beneficiaries contributing to the funding through their subscriptions.

The unemployment insurance system, established under Decree-Law No. 78 of 2006, aims to provide a steady income for those who find themselves unemployed. Contributions come from both insured individuals and their employers, each contributing 1% of wages monthly. The Labour Fund (Tamkeen) covers the employer's share for private sector workers, while the government contributes 1% of the insured individuals' wages. Although initially designed to include first-time job seekers, the system relies on social solidarity among contributors.

The government cautioned that removing the 1% salary deduction for unemployment insurance would disrupt the insurance framework, effectively converting it into a state-funded social security system. It reiterated that VAT, as a non-oil revenue source, funds the state budget without earmarking revenues for specific purposes. Article 13 of the Public Budget Law specifies that state revenues should cover all public expenditures without assigning funds for particular uses unless legally mandated.

As a result, allocating VAT revenues to the Unemployment Fund alongside government contributions would duplicate funding sources, potentially reducing overall VAT revenues and worsening the budget deficit. This scenario could threaten the kingdom's economic stability, especially given the existing pressures on the public budget from financial balancing programmes aimed at reducing deficits.