Bahrain could double value added tax - sources

General view of Bahrain World Trade Center is seen during early evening hours in Manama, Bahrain.

Bahrain is considering doubling value added tax to 10% to boost state revenues and reduce its budget deficit, a Bahraini parliamentary source and a source close to the government told Reuters, confirming local media reports.

The government's communications office did not immediately respond to a request for comment.

Bahrain's economy contracted by 5.4% last year, the International Monetary Fund has said, as the pandemic hurt vital sectors such as energy and tourism.

The small Gulf state has accumulated a large pile of debt since the 2014-2015 oil price shock. In 2018 it received a $10 billion financial aid programme from Gulf allies that helped it avoid a credit crunch.

Amending the law on 5% VAT, which Bahrain introduced in 2019 as part of plans to fix its finances and increase non-oil revenues, is being discussed between the government and parliament, the parliamentary source said.

Parliament must approve such a change in the law, the source added, saying the government was trying to find ways to protect people with low incomes should the change be made.

Other solutions to boost state finances were also being considered, the source added.

State news agency BNA said parliamentary and government representatives met on Sunday to discuss changing VAT as part of a review of fiscal options for the Gulf state as it emerges from the coronavirus pandemic.

The government reviewed how to maintain social support for eligible citizens while amending the VAT rate, the report said, without saying what rate it could be changed to.

Reporting by Lisa Barrington and Davide Barbuscia; Editing by Toby Chopra and Raissa Kasolowsky

SOURCE: REUTERS