Bahrain parliament approves value-added tax increase to 10 percent

Bahrain’s parliament has approved the doubling of value-added tax to 10 percent, a member of parliament said, a reform that is part of plans to fix the Gulf state’s heavily indebted finances.

Rated below investment grade, Bahrain was bailed out to avoid a credit crunch in 2018 with a $10 billion package from wealthy neighbors Saudi Arabia, Kuwait and the United Arab Emirates.

That money was linked to a set of fiscal reforms, but after the coronavirus crisis strained its finances, Bahrain in September postponed plans to balance its budget by two years and announced plans to increase a value-added tax.

Parliament recognized the measure was “a critical pillar of the kingdom’s fiscal balance program”, Ahmed Al Salloom, member of parliament and chairman of the Financial and Economic Affairs Committee, said in a statement on Wednesday.

The VAT increase, expected to start next year, could contribute receipts of about three percent of gross domestic product in the next few years, up from about 1.7 percent this year, ratings agency S&P Global Ratings has estimated.

Bahrain’s public debt climbed to 133 percent of gross domestic product last year from 102 percent in 2019, the International Monetary Fund has said.

“The successful approval of the VAT increase by parliament is a critical milestone within our economic recovery plans and our aim of achieving a balanced budget by 2024,” the ministry of finance said.

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