Bahrain joined neighbouring GCC countries by becoming the third in line to implement Value Added Tax (VAT) following UAE and Saudi Arabia. The levy rolled out differs from the VAT rules of United Arab Emirates (UAE) and Saudi Arabia around the zero rating and VAT exemption provisions. This is a very crucial move established by the country controlling the way business is being done since the beginning of 2019. The country witnessed mixed responses from both Bahraini’s and expatriates over the weeks since it has been set in place.

The National Bureau for Taxation (NBT) of Bahrain had announced that over 94 basic food items in addition to goods and services that support essential sectors were exempted of 5% VAT. Since January 1, 2019, people have been paying an extra 5% for certain goods and services bringing VAT into motion.  While some people welcomed the change, others were wary of the added expenses as the previous year saw a hike in utility bills as well.

“I have been working in Bahrain for many years now and the change in the pricing system over the years have been drastic. It is stressful when our incomes do not increase but prices keep increasing from time to time. Although VAT is a mere 5%, it feels a lot to most of us who feels we cannot make ends meet with the same salary at these prices” said Sushma who works with a logistics firm in Bahrain.

According to economic expert Akbar Jafferi, the implementation of VAT is marginal and a necessity to boost the country’s economy.  “In my personal opinion, VAT in Bahrain is late where in fact we should have has this implementation in the 90s. We have been an exceptional case as our government had been spending on us for a long time. But normally any state is run on taxes and not on natural resources” said Dr Akbar Jafferi.

“It is not the size of the tax but rather implementing and establishing the system that is creating a blurred picture leading to people misinterpreting it. Other countries even have up to 20% of tax on everything and it does n’t really exclude anybody” he said.

“This is the beginning of a new era and we want our government to be similar to others across the globe and run on the income from tax and not natural resources as it should be allocated for infrastructure and investment into the future” he added

Al-Ola Center for Economic Studies and Consultancy in Bahrain Head Dr Jafar al-Sayegh emphasized on the impact that VAT has on various income classes.  “Be it with the VAT or if the government increases the tax people will usually react in a negative manner as it directly affects the living expenditures. People in the lower income category will be the most affected even if it was a 1% increase in the taxes.  As it is expats are leaving not solely because of VAT but also due to the increase in the utility bills as well. So with the addition of VAT, it increases their expense and people cannot afford to pay which is why many vacate leaving flats empty. Even though only 5% is set, it will affect people. This brings concern not only to these people but to the government as well” said Dr Jafar al-Sayegh. 

“The end result should be an increase in the income of people as well but it cannot take place now. In the context of the public sector, the deficits are too high and the government doesn’t have the ability to increase the income in the near future which also applies to the private sector.  Bahrain economy depends mostly on the revenue of oil and the prices are still low. When the government decides to diversify its income then it will help raise the per capita income” he said.

“The cost of living in Bahrain is different from its neighbouring countries as their income is higher than Bahrain. In the future, I think the people especially Bahrainis will get used to paying tax but that does not mean it will not affect the living expenditure. The effects of VAT and the living expenditures will remain” he added.

Before the year began over 1,000 local and international enterprises had begun registering for the first phase of the VAT implementation. It was noted that 668 enterprises had already received their VAT Registration Certificate and more than 500 companies had initiated the process of registration.

 

Anil Varghese

“We live in a part of the world were tax was never implemented but if you observe people in Asian countries, tax is a part of their life. In India, it is consolidated and called as goods and services tax (GST) and basically, a different smaller vision of the same is being implemented in Bahrain in the form of VAT. Bahrain has made many exemptions to favour the consumers. From my perspective, the manner in which VAT has been applied in Bahrain is in such a way that we do have many flexibilities” said Zayani Leasing General Manager Anil Varghese.

 

 

“While exploring markets what we anticipate is that the first three months since VAT has been implemented will be challenging for business as people are in a state of confusion. Although the government is trying to educate through workshops, advertisements and other mediums there are still many grey areas that will have to be cleared. The VAT system will definitely help to reduce the deficits that Bahrain is facing and should help the economy in the long run” he added.

 

Jeffy George

“VAT did bring about many discussion and reactions amongst people. You see how hypermarket chains include 5% VAT in certain products but it’s also very visible how small vendors or cold stores have increased their prices to cover their cost. Many products have been exempted as well so in a way it also depends on the kind of lifestyle people choose to lead as it is quite different based on the incomes people receive. Similar to what’s happened in many countries, the initial pinch that people felt will fade as tax becomes a part of everyday life” says Jeffy who works in the finance industry.

 

Although educational services are excluded from VAT, schools last year saw parents who found it hard to pay fees due to the rising cost of living. “There are many parents who have had their salaries delayed and aren’t able to pay the fees on time.  They have genuine reasons and schools do not turn away students on this reason. What we have also seen is that many people sponsor students during such situations. Now with VAT in place, it is going to be even more intense. There are some who are even considering leaving Bahrain at the end of this academic year due to not being able to support their family” said a school staff.

“Both my husband and I work to support our family and both of us earn barely to make it through. Last year our electric bills increased during summer and were almost as much as our rent. 5% VAT may seem insignificant but for people like me, it is a big deal as I am anticipating more changes to happen at this rate. Without a balance of income and expenses not being considered, it makes people like us very difficult to stay here and raise a family and support our parents back home” said Dina Souza who works as a housemaid.

Many people took to social media voicing their concerns about the value-added tax. On the other side, many people welcomed the move as they believed it was time the people start contributing after enjoying the benefits received all these years. Some have expressed that 5% tax at the moment may be affordable as everyone needs to work together to help Bahrain’s economy.

 

"People who took part of the survey"