Bahrain to Introduce VAT from January 1; Gold & Jewellery Would Be Subject To VAT

The Kingdom of Bahrain will have a new VAT law in place from 1^st January 2019 as it will be the third Gulf Cooperation Council (GCC) member state to join the VAT fray after the UAE and Kingdom of Saudi Arabia implemented the tax one year ago.

The initial rate of VAT in Bahrain (like other GCC States) is 5 per cent which is reportedly one of the lowest VAT rates in the world. National Bureau of Gulf Taxation is the nodal authority for VAT collection and administration in Bahrain.

During the last week of December, there was pre-VAT rush in gold jewellery shops as consumers flocked to the showrooms to benefit from pr-VAT prices. The price of 22K gold also rose from BD14.6 per gram to BD16.2 on 30^th December 2018.

For the gold and jewellery buyers, VAT is a mix of good and bad news. While the purchase of gold and silver jewellery and the charges paid for making of the jewellery would be subject to VAT, pearls and gemstones would be zero rated subject to certification by the competent authority determining its nature.

Key Points to Remember

According to news reports, any individual or business with annual sales above BD37,500 would be mandated to register for VAT purposes and be subject to various compliance requirements prescribed under the VAT law. These would include issuing tax invoices, filing of periodic returns, paying taxes to the government before the due date of payment, maintaining proper books of accounts as required by law to name a few.

VAT is designed in such a way that in effect, the end-customer ultimately bears the brunt of the tax incurred throughout the supply chain. Therefore, it is the responsibility to collect and discharge VAT to the government lies with the business making the taxable supplies.

According to experts at KPMG Bahrain, which is the first national auditing firm established in the kingdom in 1968 by Jassim M Fakhro and Hussain Kasim, the implementation of VAT will have implications for businesses and individuals, both in Bahrain and abroad, directly and/or indirectly.

If companies neglect to register for VAT they will face penalties up to BD10,000, and failing to provide the tax authority with the required information could incur fines up to BD5,000.

Zero-rated categories

A zero-rating allows businesses to reclaim any VAT they have paid on costs. A Taxable Person who makes only zero-rated supplies may request to be excluded from the Mandatory Registration requirement for VAT purposes in accordance with the conditions that will be stated in the Executive Regulations.

For Bahrain, these categories are:

• Cross-border transportation of goods and passengers within the GCC and from/to the GCC
• Local transport
• Exports of goods or services out of implementing GCC states or non-implementing GCC states
• Gold, silver and platinum for investment purposes
• First supply after the extraction of gold, silver or platinum
• Supply of goods to areas under customs suspension system
• Re-export of temporarily imported goods for the for the purpose of repair, maintenance or processing
• Medicines, main medical services and medical equipment
• Education services
• Newly constructed buildings
• Petroleum, petroleum derivatives, and Gas
• Essential food items as stated under the GCC unified agreement.

Non-compliance of VAT

There would be penalities in cases of non-compliance with the new VAT law.

• A person failing to register within the required period for more than 60 days will be penalised a maximum 10,000 Bahraini Dinar (US$26,527).
• A person failing to submit a VAT return or not making a payment within the required period for more than 60 days will be subject to penalties between 2.5 per cent to 5 per cent of the due tax amount.
• A person who is providing incorrect information will be subject to penalties between 5 per cent to 25 per cent of the due tax amount.
• Tax evasion offences where a person performs a deliberate act or omission with the intention of violating the provisions of the issued tax legislation, will face prison for a period between three to five years and a penalty equal to the due tax, but no more than three times the due tax.