Bahrain to start VAT implementation by end-2018

Bahrain will go ahead with imposing a value-added tax to strengthen state finances, Minister of Finance Sheikh Ahmed bin Mohammed Al Khalifa said on Wednesday.

"We'll be working with parliament on VAT and aim to have everything set up by the end of 2018," Sheikh Ahmed told an investment conference in Manama, without giving a firm date for when the tax would be launched.

Bahrain, its sovereign debt rated "junk" by major credit rating agencies because of low oil prices, needs to diversify state revenues beyond oil. It originally planned to introduce VAT at a 5 per cent rate last month, at the same time as Saudi Arabia and the UAE.

But the plan ran into resistance from some members of parliament, and last month officials said the government would not proceed with new austerity steps until parliament agreed on a new system to compensate citizens for a higher cost of living.

"We have a system of consensus building, such as parliament. It's vital for Bahrain to go through that process as we diversify," Sheikh Ahmed said, adding that the government was diversifying revenues "not in a panicked way, in a controlled way". He also said the government had no new plans to cut the subsidies it pays to keep down consumer prices of fuel, food and services.

Bahrain is covering its budget deficit partly through international borrowing, and the central bank governor said the government would return to the international debt markets soon.