Manama. Businesses in Bahrain need to gear up for inquiries by the National Bureau for Revenue (NBR) as well as onsite visits and inspections, now that the final wave of value-added tax (VAT) is in force, an expert has warned.
According to audit and accounting advisory firm Grant Thornton Bahrain’s senior tax manager Muhammad Naveed, businesses should also expect; public and private rulings – on the industry level in the VAT treatment of specific products and arrangements; guides and clarification – to set out the tax authority’s view on how VAT rules should apply as well as a significant number of procedural and administrative updates and developments.
“With the dawn of 2020, Bahrain has completed the VAT registration process of businesses whose annual turnover is more than BD37,500, thus becoming the third country in the GCC to implement the tax regime.”
“Whether or not your business has a taxable turnover above BD37,500, VAT is now a fact of life for all businesses in Bahrain.”
Mr. Naveed has asserted that the Bahrain VAT legislation contains business-friendly provisions designed to minimise the burden of VAT on some tax-payers.
“However, certain sectors like financial services will still have to deal with complexities and the costs of the real estate sector are likely to increase due to irrecoverable VAT.”
The expert said as Bahrain started a phased roll-out of VAT from January 1 last year, with the second phase going live from last July of 2019, many businesses have found that VAT impacts them in often unsuspected ways, many of which have already resulted in changes being made to almost every aspect of the business – including systems upgrades, document changes, contract addenda, process updates and policy changes.
It is important for businesses in Bahrain to understand the intricacies of VAT and the remedies available to lessen the burden of VAT.
Strategic VAT planning, accompanied with robust controls to ensure VAT compliance, is essential, said Mr. Naveed.
The Grant Thornton checklist for VAT readiness has four main themes under which activities for businesses are categorised.
They are: Preparation of activities – data gathering from internal sources; additional analysis of accounting information; calculation of tax liability including data inputting; preparation and maintenance of mandatory tax records and complying with changes in tax rates and rules.
Filing activities include completion of tax return forms, including additional documentation; submission of forms to tax authority, including time for electronic filing and waiting time at the tax authority office.
Payment activities to be considered are, calculations of tax payments required including extraction of data from accounting records, and maintenance of accounting systems; analysis of forecast date and associated calculations if advance payments are required and making tax payments, whether online or at the tax authority office, which may include time for waiting in line and travel.
Audit activities include analysis of the VAT audit and inquiry; consulting tax experts; preparing required information; meeting submission deadlines and deciding to accept or appeal on the audit decisions.
Grant Thornton Bahrain senior partner Jatin Karia said all senior executives in all businesses should take a careful interest in their VAT returns ensuring that their organisation remains compliant with VAT legislation.
“Although the standard rate of VAT (5pc) is one of the lowest anywhere in the world, the penalties that Bahrain has introduced for even relatively common administrative errors could represent a major setback for many businesses,” he added.
According to him, the Bahrain government is anticipating around BD270m in revenues from VAT this year, as against BD214m estimated last year.
“These extra funds can prove to be a gamer changer for Bahrain economy, and we all can feel the business-friendly winds across the island.”