Dubai: The government of Bahrain has raised VAT by 10 percent on all goods taxable under Bahraini law, local media reports. Due to non-compliance with VAT requirements, 12 stores were shut down.
This comes two years after Bahrain imposed a 5-percent tax on taxable goods in an attempt to cut budget deficits and re-stabilize the Fiscal Balance Programme impacted by COVID-19.
A VAT increase in the next few years could boost the government’s revenues by about 3 percent of gross domestic product from about 1.7 percent in 2021, according to a recent estimate by rating agency S&P Global Ratings.
There is no effect on supplies that are exempt from VAT such as real estate and some financial services or those that are subject to the zero-rate, such as food, construction of new buildings, oil and gas, healthcare, and education. The list of non-taxable items consists of water, milk, meat and fish, oils, eggs, sugar and salt, infant food, bread products, vegetables and fruits, coffee beans, tea and cardamom, and wheat and rice. Bahrain has also refused to charge VAT on 1,820 government services.
From January 1, 2022, all imported goods, unless zero-rated or exempt from VAT, will be subject to a 10 percent VAT rate.
Violations of VAT
During a visit to 161 shops in Arad District, Seef Mall Manama, Avenues Mall, Ramli Mall, Seef Mall Isa Town, and City Center Mall, the Ministry of Industry, Commerce and Tourism closed 12 stores as they failed to comply with VAT requirements.
The inspections were conducted in coordination with the National Bureau for Revenue. Judicial Control officers stated they detected 73 VAT violations and fined up to BD10,000.
According to the Bureau, there is a legal procedure underway to refer the violating facilities, for which the punishment may reach up to five years imprisonment and a fine equal to three times the evaded VAT.
Your Business Preparation
Your business’s readiness for VAT depends on its size and how much VAT-able supply it makes annually. The National Bureau for Revenue (NBR) provides steps for small, medium, and large businesses to get ready for VAT.
Businesses that do not exceed 3 million Bahraini Dinars in annual VAT-able supplies are considered SME (Small & Medium Enterprises), and must follow the steps below:
- Incorporate value-added services in your products
- Resolve issues related to points of sale, billing requirements, and record-keeping
- Ascertain the correct way to present value-added returns through the use of appropriate accounting software
Businesses that have annual VAT-able supplies of over 3 million Bahraini Dinars are considered large businesses, and should follow these steps:
- Institutional readiness, employee roles, and training
- Refer to the National Revenue Authority for assistance with special cases not covered by executive regulations
- Setting up appropriate mechanisms to audit comprehensively and correlate them with accounting records
- Register the value-added suppliers, obtain their value-added certifications, and determine the value-added suppliers
- Developing structured value-added reports that include inputs and outputs
- Include a value-added clause in contracts with customers and define special processes for dealing with customer bad debts (including accounting practices)
- Update IT applications according to the requirements of the new technology necessary to support value-added operations