All about VAT Audit in Bahrain

Introduction of VAT in Oman

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The Cooperation council for the Arab States of the Gulf also known as the Gulf Cooperation Council (GCC) originally is a regional union with treaty signed on the 25 th of May, 1981 consisting of six Arab states namely, Bahrain, Kuwait, Oman, Qatar, Dubai and the Kingdom of Saudi Arabia. Headquartered in Riyadh, Saudi Arabia, it is an intergovernmental political and economic union of the aforementioned six Arab states.

The introduction of a formal VAT system was confirmed through the VAT Framework Treaty signed by the representatives of the Member States of the Gulf Cooperation Council (GCC) across all the six states. Value Added Tax (VAT), also known as Goods and Services Tax (GST) in some countries, is an indirect tax on the consumption of a good or a service. Therefore, the ultimate tax burden is endured by the consumer. The tax payable is assessed on the value added to the said goods and services at each stage of production or distribution.

The VAT Framework Treaty stipulates certain principles to be followed by all the member states and at the same time allowing them to opt for different VAT treatments with respect to some supplies. This treaty acts as the base for the local VAT legislation in the member states separately.

In 2018, it was agreed by all six of the Gulf Cooperation Council states to introduce a harmonised 5% VAT regime and customs union, out of which only Saudi Arabia, Dubai and Bahrain have proceeded. Saudi Arabia and Dubai implemented VAT in 2018 and Bahrain implemented VAT last year on 1 January 2019.Following this introduction of Value Added Tax (VAT), the other four Gulf States as agreed under the Gulf Cooperation Council (GCC) VAT Framework Treaty are looking to implement VAT.

In Oman, the local VAT legislation, regulations and guidance is under preparation and review. Therefore, if you are planning to set up a business in Oman, you should be aware of how your business is going to shape into, once VAT gets implemented.

As already said, VAT is an indirect tax on the consumption of a good or a service and hence the ultimate tax burden falls on the consumer. Therefore, the setting up of a new business or venture will have to be looked into from various angles to know whether it will be profitable or not.

Also, the calculation of the tax payable and other procedural formalities with the introduction of VAT is going to be huge on the economy of Oman as a whole. Since Oman is different from the other member states of GCC and also much time has been given to the Omani government to prepare for the launch of VAT, more care has to be taken while introducing VAT so that the existing businesses go on smoothly without any disturbance and at the same time new entrants don’t find it as a barrier for setting up their businesses and marketing the products since the consumer is going to be more thrift and prudent.

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