'Start preparing for Bahrain’s VAT rate increase'

TDT | Manama

The Daily Tribune – www.newsofbahrain.com

Times are tough - both for tax collectors and taxpayers. And we all know that. Policymakers around the world are also not seeing any easy ways out.

After nearly two-year-long inactivity, talks of ‘going back to business as usual’ has just started gaining some strength. But, as said, it demands extreme measures. Thanks to the vaccination drives, COVID-19 had faded but definitely not gone. World leaders have recognised this and are taking a cautious path to normality.

The financial stimulus was the first effort to get back on foot. Not just once. It came multiple times and continues still. However, the news here in Bahrain is that new measures are on the way.

This time the focus is on VAT, says a report by MMJS consulting. According to them, Bahrain’s VAT rate at 5% is on its way to reaching 10%. They report this citing a bill approved by the Bahrain Cabinet on the 27th of September 2021. The bill was for amending some provisions of Decree-Law No. (48) on VAT.

It calls for implementing from the 1st of January 2022 a new rate for VAT. The proposal is now with the National Assembly for approval.

According to the MMJS report, both the Parliament and the Shura Council will likely approve the proposal. “Once implemented, the supply and imports of goods and services in Bahrain by taxable persons will be subject to VAT at 10% (rather than the current rate of 5%), unless where it is specifically exempted or zero-rated,” the report adds.

So, better get ready

The report gives a checklist of things that businesses in the Kingdom should follow.

“We recommend businesses to proactively start the process of reviewing contracts and tax invoices for supplies that span the VAT rate increase period to assess and properly address the potential VAT impacts,” the MMJS report adds.

Conciliation

The report also throws light on the recent updates by the National Bureau of Revenue regarding conciliation in VAT evasion crimes, according to Article 64 (G) of VAT law.

Conciliation is a way of settlement for a VAT evasion crime outside of criminal courts between NBR and the person accused of committing the offence(s) stipulated in Article 63 (Cases of Tax Evasion) of VAT law, where the accused or his agent submits a request for conciliation to NBR in addition to paying the required amounts to complete the conciliation procedures.

“A request for conciliation must be submitted before the criminal lawsuit is filed or during the hearing at the competent court,” says the rule.

NBR has also updated their procedures for disposing of obsolete stock for no consideration. Effective the 3rd of October 2021, taxpayers will no longer be required to submit an advance notice to the NBR before disposing of obsolete stock to preserve the input VAT deducted on such stock.

“Where a taxable person disposes of obsolete stock for no consideration, he will not be regarded as having made a supply of goods for VAT purposes and will not be obliged to account for VAT on the stock.”

Earlier, taxable persons were required to give advance notice to the NBR of their intention to dispose of obsolete stock at least 30 days before the disposal to avoid reversal of any input tax claimed on such stock subject to certain conditions.

WHAT SHOULD BUSINESSES DO?

• Assess the financial implications on the existing contracts

• Re-visit the working capital requirements

• Assess the pricing strategy to be adopted

• Examine the transitional rules (once released)

• Assess VAT grouping as an opportunity

• Reviewing the amount of non-recoverable input tax

• Performing an assessment of the IT system

• Update Tax Invoices, Credit and Debit Notes to cater to multiple

• Examine the VAT impact on inter-company cross-charges

• Requisite training to the staff from the relevant departments

• Assess the need for a tax specialist

• Prepare for NBR audits