Bahrain parliament approves value-added tax increase to 10%

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DUBAI, Dec 8 (Reuters) – Bahrain’s parliament has approved the doubling of value-added tax to 10%, a member of parliament said, a reform that is part of plans to fix the Gulf state’s heavily indebted finances.

Rated below investment grade, Bahrain was bailed out to avoid a credit crunch in 2018 with a $10 billion package from wealthy neighbours Saudi Arabia, Kuwait and the United Arab Emirates.

That money was linked to a set of fiscal reforms, but after the coronavirus crisis strained its finances, Bahrain in September postponed plans to balance its budget by two years and announced plans to increase a value-added tax.

Parliament recognised the measure was “a critical pillar of the kingdom’s fiscal balance programme”, Ahmed Al Salloom, member of parliament and chairman of the Financial and Economic Affairs Committee, said in a statement on Wednesday.

The VAT increase, expected to start next year, could contribute receipts of about 3% of gross domestic product in the next few years, up from about 1.7% this year, ratings agency S&P Global Ratings has estimated.

Bahrain’s public debt climbed to 133% of gross domestic product last year from 102% in 2019, the International Monetary Fund has said.

“The successful approval of the VAT increase by parliament is a critical milestone within our economic recovery plans and our aim of achieving a balanced budget by 2024,” the ministry of finance said.

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