06 Jan 2019
THE PLUS SIDE OF VAT
Following the decision of the UAE to introduce VAT, Bahrain implemented the tax in on January 1 this year, leaving other countries still to do so.
At the time, Bahrain’s principal law process has been in circulation for a few months (in Arabic). However, the more comprehensive set of laws continue unnoticed, making it complex for businesses that need to prepare to do so.
It was only in the Emirati VAT regulations that provisions were included regarding, for example, whether the charge is presented bonds that made no indication to VAT should be treated as inclusive or exclusive.
Most businesses are not needed to register for VAT in Bahrain from January 1, this year. In November, Rana Faqihi, the finance ministry’s assistant undersecretary for development and revenue, announced that only businesses with sales exceeding 5 million dinars (Dh48.8m) would have to register for VAT by December 20, 2019. This was later confirmed by the National Bureau for Taxation. It also confirmed the registration threshold would drop to 500,000 dinars in June 2019, and 37,500 dinars in December 2019.
It will not astonish you that 5m dinars are the highest VAT registration verge in the world. Singapore’s VAT verge, one of the maximum by similarity, is a mere Dh2.5m
On the one hand, it’s a matter-of-fact – and provisional – reaction to the foreword of a composite transactional tax in a jurisdiction that does not generally have taxes.
A challenge in the UAE was that undersized and medium-sized businesses had smaller quantity property to recognize both the basics of VAT functions or the involvedness of the legislation.
The Federal Tax Authority was certainly extended too delicately to be able to control VAT, provide quick support to taxpayers and issue clarifications on restrained but significant points of law.
Bringing only large businesses within the VAT fold means that those who have the resources to put into practice it will be necessary to do so, which should sequentially facilitate the National Bureau for Taxation to fine-tune the operation.
Conversely, the high registration threshold – even if only provisional – in principle puts Bahrain in breach of the Unified VAT Agreement, the GCC treaty setting out the general outline for creating a VAT system in each country. Article 50 of that treaty states that the mandatory registration threshold is Dh367,173 or its local equivalent, which gives a registration threshold in Bahrain of approximately 37,500 dinars, the figure it will drop to in a year.
Such a high threshold generates fiscal effects. The purpose of a VAT threshold is, roughly talking, to evade micro businesses from having to register for and charge VAT so as not to submerge them with bureaucracy. The purpose of a threshold is not to impose VAT on supplies made by big businesses only.
The realistic effects are apparent. A minute, self-governing fitness center may not need to register for and charge VAT until the end of 2019; a chain of 20 sports club will be more likely to do so. As a customer, not capable to recuperate VAT that is charged to me, I may be more tending to go to the self-governing fitness center rather than the chain gym, to avoid the 5 percent price increase.