Manama: KPMG in Bahrain partner and head of tax and corporate services Craig Richardson stressed the importance of companies’ readiness to adopt value-added tax (VAT) that will lead to a significant change in the business environment.
He was speaking at a seminar on VAT at the Diplomat Radisson Hotel. More than 200 delegates attended.
GCC countries are expected to sign framework agreements to introduce VAT by the end of second quarter. Draft legislation is expected in the following months.
“Once rolled out, VAT will affect sales of goods and services in Bahrain with limited exemptions and consumption tax relief. However, there will be a right for businesses to claim a credit for VAT paid on their expenditures relating to their business activities. Therefore, it is important for businesses to start reviewing and considering their business models to offset this anticipated change,” Mr Richardson said.
Although the implementation of VAT will increase the cost of doing business, revenues gained from VAT will be ploughed back into the economy. This will also contribute to enhancing overall business conditions, while maintaining the country’s position as a business friendly hub.
Bahrain has long been considered an attractive low-tax environment, especially for businesses looking to invest in the Northern Gulf region. Generally, the introduction of a broad-based VAT at a low rate is unlikely to deter investment into Bahrain, or the GCC region.
The appeal of the region stretches much further than its low-tax status. Infrastructure development, access to high-potential growth markets in Africa and Asia, free trade zones, competitive labour costs, few trade barriers, no exchange controls with US dollar-pegged currencies, as well as economic and political stability, are factors to be considered.
Mr Richardson said the implementation of VAT at a low rate will not have a recurring inflation impact unless the VAT rates are increased. Some businesses may choose to absorb the VAT cost, wholly or in part, to limit the impact on consumers.
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