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Why VAT isnecessary

Comment
Winfred Peppinck


The recent audit report from the Financial and Administrative Audit Bureau is both insightful and damning.

Little wonder that parliament is calling for serious action on the “squandering” of public money by government bodies.

Three ministries – Education, Interior and Foreign Affairs – collectively overspent by more than BD7 million last year.

That is only a part of it and the audit bureau has fired a scattergun – striking a lot of government bodies and suggesting they should be held to account, as there are serious violations.

Things such as incorrect payment of bills, failure to check why expenditure has been undertaken, paying people money they shouldn’t and money being spent on substantial equipment replacement – often without referral to necessary authorities.

There were failures to inform the Auction and Tender Board when signing and renewing contracts over BD25,000, which is a mandatory requirement for all ministries.

Damning too was the failure to recoup fines and collect other revenues owed.

Most concerning of all was the ballooning of public debt, which in 2012 was BD5.4 billion and in 2017 was BD10.7bn – almost double the amount.

It could possibly be even more because the Electricity and Water Authority (EWA) and the Oil and Gas Holding Company have taken out loans totalling BD2bn, which are not included in the total audit calculation.

This at a time when national revenues are down from BD2.94bn in 2013 to BD2.2bn, although much of that decline has been caused by a fall in the crude oil price.

But the oil price has been falling again and Bahrain still relies on oil for 75 per cent of its revenues.

Once again there is a call by MPs to delay VAT, which will be a provider of much-needed revenue when it is implemented from January 1, so that people and businesses can learn how it will impact them.

This is after numerous meetings and with lots of literature showing how it will be effective, what needs to be done.

These “heads in the sanders” are now advocating extending implementation yet again, claiming the country is not ready.

What part of economics do these people not understand?

Do they live in la-la land? Are they wearing rose-tinted glasses?

They have been suckled for years on subsidies, which are no longer affordable.

Do they ever read the financial pages? Do they ever wonder where the money is coming from?

Ratings agency Moody’s most recently issued a helpful but cautionary outlook for Bahrain, giving it a rating of B2 and stable.

This is recognition that the economy is becoming more diversified and a potential investment base.

Other rating agencies and the IMF have all expressed concerns about external liquidity risks, now somewhat alleviated by the $10bn GCC financial support package announced in October.

However, sovereign vulnerability remains very high with persistently low foreign exchange reserves.

In 2013, the government paid BD192 million in interest on its debt. In 2017, the figure was BD479m.

A National Debt Management Office is long overdue.

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