Bahrain being part of GCC, is obliged to comply and apply the VAT treaty which came to face and absorb some difficulties. First, it is better to mention that the new VAT is of certain features including, among other things, a small rate of five per cent compared with 17 to 20pc in developed countries including Germany, France and the UK. Also, the exemption of many essential products and services “zero rated” from the VAT. I believe, such strategy is intended due to the absence of taxation culture in the region.
This year, the implementation of VAT in Bahrain, is in progress but not free from obstacles. Including, some companies are yet to complete IT systems, train staff, comprehend the process, registration issues, VAT return process and confusion over tax invoices. Moreover, other related issues have started as consequence to VAT, namely prices increase to face VAT. Such points need time to settle and firm actions are required. By all means, costs rationalisation is needed and there should be regulations to supervise and control the market to escape adverse consequences due to VAT.
Another valid point, the business community is to be vigilant and to comprehend VAT law, regulations and changes or directives regarding interpretation of the new law. We say this, as we have noticed different interpretations and different understandings given by many professionals in special conferences and events. No doubt they are all genuine but, on the other hand, there is big room to cause confusion at this embryonic stage.
Generally speaking, taxation laws, face difficulties due to the opposite understanding between officials concerned and tax-payers. However, the Value Added Ttax (VAT) is more straight forward and relatively more clearer and simpler in application. This point, obviously, is behind the reasoning for choosing VAT, as the best available alternative if there is any need to apply taxation.
From experience, whenever there are new laws, it is possible to face obstacles during the process of implementation. However, what is important is the genuine will from all parties concerned to work hard and work in harmony to reach the real intention of the legislature when passing the law. In Bahrain, some take VAT, a de facto situation, we must collaborate, harmonise all efforts to take VAT to the de jure situation, and to go for rightful implementation. This is needed.
The author is a legal consultant