A landmark corporate tax law referred to Parliament is facing early scrutiny from MPs who insist that tax rates and calculation methods must be clearly set out in the legislation itself, rather than left to executive bylaws.
The issue was raised by Parliament’s legislative and legal affairs committee chairman MP Mahmood Fardan during a Press conference on Parliament’s performance over the term.
“Taxes are not fees,” Mr Fardan said. “They must be stated precisely in the law itself – including percentages, calculation methods and tables. Leaving this to executive regulations raises serious questions of constitutionality.”
He said his committee had formally conveyed its concerns to the financial and economic affairs committee, which will lead the review of the draft corporate tax law.
Committee chairman MP Ahmed Al Salloom confirmed the legislation would soon be reviewed, and said timing had delayed progress.
“The Bahrain Chamber was only formed following last month’s elections,” Mr Al Salloom said. “We sought its input during that period, making it difficult to proceed before the recess.”
The 61-article draft law was formally referred to Parliament by the Cabinet and proposes one of the most significant fiscal reforms in Bahrain’s modern history.
At its core is a two-tier system aimed at shielding small businesses while taxing larger entities. A 10 per cent tax would apply to companies with annual revenues exceeding BD1 million or net profits above BD200,000, with tax calculated on amounts exceeding the profit threshold.
The law applies to resident companies operating inside or outside Bahrain, individuals conducting business activities, non-residents with a permanent establishment in the kingdom and non-residents earning Bahrain-sourced income.
Personal salaries and private real estate income are explicitly excluded.
The draft also introduces withholding tax on cross-border payments made to non-residents, including 5pc on interest, royalties and services, while dividends remain at 0pc. Interest paid by government entities would also be exempt.
A strict criminal framework is proposed for tax evasion. Violators could face jail terms of three months to five years and fines of up to three times the unpaid tax. Repeat offences within six years would trigger doubled penalties, and companies could be held criminally liable. Cases would be handled urgently by the High Criminal Court.
Administration of the system would fall under the National Bureau for Revenue, with powers to inspect premises, request data and exchange information with foreign tax authorities.
Mr Al Salloom noted that the committee would review the draft alongside the legislative and legal affairs committee to ensure both fiscal effectiveness and constitutional soundness.
He also revealed that although Parliament approved the GCC Unified Framework on Excise Duty on May 7, the national legislation implementing it must wait until October despite being referred to Speaker Ahmed Al Musallam.
The amendments to the 2017 Selective Tax Law target sweetened beverages.
The proposal replaces the flat-rate system with sugar-based bands. Sugar-free drinks and those with less than 5gm of sugar per 100ml would be tax-free. Drinks with 5-7.99gm would be taxed at BD0.079 per litre, while those with 8gm or more would face BD0.109 per litre. Tobacco and energy drinks remain taxed at 100pc.
The reforms would also transfer administration of excise tax from the Finance Ministry to the National Bureau for Revenue and allow pre-registration for businesses to ease transition.
Mr Al Salloom says the move supports public health goals while strengthening revenues under Bahrain’s fiscal balance programme.
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