Bahrain Mirror: The current political climate will limit the benefits of the value-added tax (VAT) in parts of the GCC, such as Bahrain, stated a new report from BMI Research.

In the case of Bahrain, the report notes that any gains in revenue are likely to be offset by elevated government spending.

"Elevated spending, in a bid to limit social instability, will severely constrain improvements in Bahrain's fiscal position, even as VAT is introduced," the report adds.

Similarly, the report highlights that in Kuwait and Oman - both of which have put off the implementation of VAT until at least 2019 - discontent and political gridlock could further delay the tax.

According to the report, the introduction of VAT is "a positive step, allowing the hydrocarbon-dependent economies to further diversify revenues with relatively limited negative economic fall-out."

The implementation of value-added tax (VAT) will have the greatest fiscal benefits in Saudi Arabia and the UAE. "While both the UAE and Saudi Arabia have already implemented VAT, BMI notes that the impact will be different in both countries," the report further reads.

The report also points out that "VAT will be a bigger boost for government revenues in the UAE, given its larger consumer base and importance of retail spending for the economy, especially from overseas visitors."

In Saudi Arabia, BMI believes the impact of VAT will be lower, particularly given that the government has announced plans to transfer cash to the most vulnerable households to limit the negative impact of the tax.

Arabic Version