VAT at low rate is unlikely to deter investment : Expert

Manama : Implementation of value-added tax (VAT) at a low rate will not have a recurring inflation impact on Bahrain unless the VAT rates are increased. Some businesses may choose to absorb the VAT cost, wholly or in part, to limit the impact on consumers, viewed a key expert. 

Partner and Head of Tax and Corporate Services at KPMG in Bahrain Craig Richardson said this during a seminar organised by KPMG in Bahrain on
VAT. 

During the seminar, he also stressed on the importance of corporates’ readiness to adopt this development that will lead to a significant change in the business environment.  Around 200 delegates attended the seminar, which was held at the Diplomat Radisson Hotel.  

Viewing Bahrain as an attractive low-tax environment, especially for business looking to invest in the Northern Gulf region, Richardson said the introduction of a broad based VAT at a low rate is unlikely to deter investment into Bahrain, or the GCC Region

“The appeal of the region stretches much further than its low-tax status. Infrastructure development, access to high-potential growth markets in Africa and Asia, free-trade zones, competitive labour costs, few trade barriers, no exchange controls with USD pegged currencies, as well as economic and political stability, are all factors to be considered,” he added. 

GCC countries are expected to sign the Framework Agreements to introduce VAT at a rate between 3-5 per cent by the end of Q2, 2016. 

However, he warned that once rolled out VAT would affect sales of goods and services in Bahrain with limited exemptions and consumption tax relief. 

“But, there will be a right for businesses to claim a credit for VAT paid on their expenditures relating to their business activities. Therefore, it is important for businesses to start reviewing and considering their business models to offset this anticipated change,” Richardson said.  

“Although the implementation of VAT will increase the cost of doing business, revenues gained from VAT will be ploughed back into the economy. This will also contribute to enhancing the overall business conditions, while maintaining the country’s position as a business friendly hub,” he added.