Bahrain VAT rise preparations

2025-25 Budget lays ground for rise in 10% VAT rate

The Bahrain 2025-26 budget has been submitted to Parliament.  This includes a potential VAT rise (no increase specified yet) and other tax reforms. Bahrain’s VAT rate has been 10% since a VAT rise in 2022.

The budget also talks about improving collections, indicating introduction of Bahraini e-invoicing mandate. A tender for a national regime was issued earlier this year.

Bahrain introduced VAT in January 2019 at 5%. This was part of a six Gulf State agreement on a VAT and customs union signed in 2016. To date, Saudi Arabia, UAE, Bahrain and Oman have introduced VAT. This was at 5%, but Saudi Arabia raised VAT to 15% in 2020.

Package of tax reforms in Bahrain budget as growth slows

Other measures within the draft budget include:

• Extend supplies subject to corporate income tax.
• Preparations for a corporate income tax regime;
• National health insurance regime;
• Withdrawal of energy subsidies;
• Carbon emissions charging schemes.

The country is anxious to diversify its economy and revenues beyond its oil industry, which has been in structural decline for several years; financial services have long eclipsed extraction of crude petroleum and natural gas as a contributor to GDP. In January, Bahrain’s Ministry of Finance and National Economy cut its estimate for real GDP growth for 2024 from its previous forecast of 3 per cent to 2.7 per cent

Bahrain VAT as part of GCC agreement

It was the third of the six Gulf Cooperation Council states to do so as part of a 2016 agreement to introduce a VAT and customs union. Saudi Arab and the UAE started the process in January 2019. Oman has since followed in April 2021. Kuwait and Qatar may rollout their VAT regimes in the next two years.

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Arab Gulf GCC VAT implementations