How VAT is helping Bahrain in

economic development?
As a major worldwide tax instrument, VAT helps in reinforcing economic growth.
On January 1, 2019, GCC countries along with the Kingdom of Bahrain have
implemented VAT intending to increase the revenue base of state and create
funds on the market for development purposes that may accelerate the economic
process.

VAT is an obligatory tax return in Bahrain on the goods and services. This
imposition is government-operated once the budget surplus is taken into thought,
with a relevant increase in revenue and financial budgetary deficit. People are
being imposed with taxes and duty charges by the Bahraini government to meet
the different demands related to infrastructure, technology, and
entrepreneurship.

How VAT could be a technique of state in generating

revenue?
VAT is a government’s technique to support their country’s economy to earn
revenue. Additionally called consumption tax, VAT is needed by the consumers
on the consumption of goods or services. VAT is prevalent all over the world as
every government has used this technique of direct participation of consumers to
support the economy.

Bahrain had been zero tax country however the country’s debt exaggerated to an
alarming situation that raised major economic problems for the country.
Therefore, to handle this economic situation, Bahraini government determined
for the 5% VAT imposition since 2019. The government is expecting that it would
be a good plan to support the lingering economy of the country while, on the
contrary, the locals, SMEs, and MNCs have recorded serious protest against this
government’s actions.
What are the aftermath and outcome of VAT on
Bahrain’s economy?
Aftermath of VAT
The VAT implementation has displayed multifaceted facts on the economy of
Bahrain.

1. On one side, it is exposed that the rate of inflation has been raised within
the aftermath of VAT implementation. It is also found that SMEs'
production has greatly declined to pose a negative impact on the country’s
economy. Because of the reduced production, the profit margin of the
companies has also reduced two ways - in terms of taxation and term of
reduced business.

2. Under the influence of VAT implementation, another major associated

concern with the economic suffering of Bahrain is that in the VAT
aftermath, the foreign investment has also declined to great extent posed
new economic challenges as it is a huge contributor in Bahrain’s economy.

3. Additionally, it also influenced the people because the increasing rate of

inflation has reduced the purchasing power of consumer that cause
reduces of capital in market circulation.

Outcomes of VAT
Though the VAT had many aftermaths to offer, still there are some certain
outcomes of VAT implementation:

1. VAT that seems a large burden on the economy at the first stage would give
better results by reducing the country’s debt that has reached to horrifying
scale. According to the analysis, the positive long-run VAT impact is found
as it is expected that from the starting years the revenue from VAT would
help to give 2% of the country’s GDP and that is a good sign.
 2. It is also concluded that in the short run, VAT will act as an inflation bomb
on the public and business entities but in long run, it will be more focused
towards bringing prosperity to the country with better economic
development.

Bottom Line
The idea of VAT implementation as a tax return in Bahrain is a good step by the
government of Bahrain by considering the country’s current situation but
simultaneously, there is also a need to create VAT awareness among the people
and the long-run impact associated with it on the economy of Bahrain.