VAT is now 10% in Bahrain!

TDT | Manama

The Daily Tribune – www.newsofbahrain.com

Starting today, an increased 10% Value Added Tax is valid on all goods that are taxable by law as the Kingdom ringed in the year 2022 with renewed hope amid concerns over the new Omicron variant.

The increase comes two years after Bahrain started implementing a 5% VAT on taxable goods in a bid to curb budget deficit and re-stabilise the Fiscal Balance Programme impacted by Covid 19.

The VAT increase could contribute receipts of about 3% of the gross domestic product in the next few years, up from about 1.7% in 2021, rating agency S&P Global Ratings had estimated.

Supplies that are subject to the zero-rate (e.g. basic food, construction of new buildings, oil and gas, healthcare, and education) or exempt from VAT (e.g. real estate and certain financial services) will be unaffected.

‘basic’ food products

Meaning, the VAT increase does not apply to 94 ‘basic’ food products and over 1,800 government services that are not taxable. Non-taxable items include water, milk, meat and fish, oils, eggs, sugar and salt, infant foods, bread products, vegetables and fruits, coffee beans, tea and cardamom, and wheat and rice.

Bahrain also exempts 1,820 government services from the purview of VAT. Authorities also state that imported goods on or after the 1st of January 2022 will be subject to the 10% VAT rate unless they are zero-rated or exempt from VAT.

5% VAT rate

However, a 5% VAT rate will apply to standard-rated goods or services supplied before the 1st of January 2022. This is valid even if the invoice is issued or payment is made on or after the 1st of January 2022.

Meaning, one could continue with 5% VAT until the end date of the contract, or contract resnewal or amendment date, or a year from the 1st of January 2022. But, if the contract period exceeds 2022, the VAT rate will change to 10% on the supplies spanning after 2022.

On all other items, as approved by the Council of ministers in September, the Value Added Tax in Bahrain will jump to 10% from 5%. The new VAT rate is as per a newly inserted Article 4 in the VAT Law (33) of 2021.

The law entered the official gazette on the 23rd of December 2021. As per Article 3 of the VAT Law (33) of 2021: “Tax shall be imposed at a standard rate of (10%) on the value of a Supply or import unless a provision is made in the Law to exempt from Tax or to impose Tax at a zero rate.”