Bahrain: Introducing VAT may fluctuate ‘business confidence’

The introduction of Value Added Tax in Bahrain is projected to have similar affects as to that of UAE and Saudi Arabia, which saw a buying frenzy prior to its implementation and a temporary drop in business confidence soon after, according to official forecasts.

VAT implementation is expected to cause a temporary fluctuation in business confidence but not cause any permanent disruption, said EDB Chief Economist Dr Jarmo Kotilaine. He said that Bahrain would experience a similar impact as seen in Saudi Arabia and UAE, where a spike in purchasing was noticed followed by a temporary dip in business confidence.

“The effects of VAT on consumption are going to be quite temporary. Before the introduction of VAT, we will see some people bring forward their expenditure because they may want to buy before VAT is introduced. Because of this when VAT comes in there may be a drop. But these kinds of things normalise relatively quickly,” he said. He said that the introduction of VAT is not going to be disruptive. “I do not think it will be disruptive based on what we have seen in Saudi Arabia and the UAE. The companies will adjust and plus the rate is not very high. By international standards, the rate is low.”

 

“About Saudi Arabia and the UAE, there was a lot of business confidence back when everyone was purchasing in anticipation of VAT implementation. The confidence plummeted after VAT, but you can see that the graphs shows things have rebounded quite swiftly. What happened was that there was a bit of adjustment period, there was a bit of a concern and anxiety. But economic fundamentals were always looking good.”

He said that there has not been any indication so far to regard inflation as a concern. “Inflation is not much of a concern for the region; the two countries where we have seen a spike are Saudi Arabia and the UAE because of their introduction of VAT. The good news is that the inflation was low and it was for a brief period, since then the rate of inflation has been coming down,” he said.

“In most parts in the region, the house prices and rents are either stable or they are declining. So when we look as the biggest markets such as the UAE, prices are still declining. That means that there is very little new inflationary pressure coming in,” he added.

Minister of Finance Shaikh Ahmed bin Mohammad Al Khalifa had previously affirmed that the Ministry’s goal was to implement VAT by the end of 2018.

 

Source Credit: DT News

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