The GCC countries, through the GCC Common VAT Agreement, have agreed to introduce VAT within their systems. The initial aim was to have the VAT system introduced into the economy across all countries by the start of 2018, except for two countries which were given until the beginning of 2019 to implement the same.
Value Added Tax or VAT is a tax that is placed on goods and services where the value is added to the products sold at different points throughout the sales processes. While the entity selling the product does pay the tax to the government, they do not pay it based on their earnings; but rather the consumers are charged an additional amount payable to the government. In the GCC, the initial VAT rate is at 5%.
There are other factors which will arise following the implementation, due to the earlier practice of minimal taxation within the GCC nations. With Bahrain preparing to introduce the VAT system, here are some of the critical impacts that will be felt by the country’s neighbors.
VAT Implementation and the Effects on Bahrain’s Neighbours
Apart from the apparent impacts on businesses, the implementation of VAT brings about several other international impacts which require consideration. One such aspect is that of the importing and exporting goods. There will be different requirements based on whether something is an import or an export; and with the GCC nations having the same legal background and stance on the topic, it will be important for businesses to decide whether they will be importing into one country or exporting out to another.
Another crucial area of discussion regards whether the Bahraini VAT is levied on a business in Bahrain performing actions in another country or charging a foreign entity for something carried out in a different country.
It is evident from the above-stated main points of consideration that much cooperation required amongst the GCC countries to ensure a well-developed and smooth transition into the new VAT inclusive landscape.
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