Bahrain approves draft VAT law amid financial struggles

Bahrain approved a draft law that would introduce the kingdom to value-added tax (VAT) for the first time, state news agency BNA reported.

Legislators approved a Gulf Arab agreement to introduce the tax after a royal decree ordered parliament to hold an extraordinary session on Sunday, BNA reported, without providing further details of the vote.

A similar session to approve the bill is expected to be held by the parliament’s upper house later this week.

The move came after reports confirmed the Gulf kingdom was set receive a $10 billion aid package from its Gulf neighbours to help with the country's finances.

Saudi Arabia, the UAE and Kuwait will provide the financial support for Bahrain, which has been struggling with economic instability after low oil prices and political unrest, Kuwaiti newspaper Al-Rai reported on Thursday.

Bahrain has been running a financial deficit due to the low oil prices, and has been hit by troubles following a clampdown on protests from the country's Shia majority.

"A Gulf decision at the highest levels was taken to start the execution steps for a programme to support the financial stability of Bahrain," a source told the Kuwaiti newspaper.

Saudi Arabia and the UAE are two of the Bahrain regime's closest allies, and helped quell protests in 2011 following military intervention.

Kuwait has also helped Bahrain and Oman cope with financial difficulties in the past.

The three countries were reportedly in Jordan last week to provide a $1 billion cash injection for the government, which has also suffered a credit crisis that led to large-scale protests this summer. The amount offered to Bahrain will cover two years of deficits, according to Reuters.

The Gulf states announced in summer that they were considering a bail-out package for Bahrain following financial difficulties, on condition the country pushes through tough economic reforms.

At the time, this was thought likely include the introduction of VAT, a new subsidy programme and pension reforms, before elections for the country's national assembly next month.

The 5 percent VAT rate was announced as part of a Gulf Cooperation Council (GCC) agreement in 2018.

On Friday, Bahrain published a 33-page fiscal plan to fix its debt-burdened finances and essentially abolish its budget deficit by 2022.

The plan, which promises further cuts in public spending, comes at a sensitive time as the kingdom prepares to hold election next month, the second ballot since 2011 when protesters took to the streets demanding democratic change.