Bahrain's government has referred a draft law to parliament to amend the VAT in the kingdom, state news agency said.
The country currently imposes a 5 per cent tax but the agency did not specify if the government is looking to raise the tax or slash it.
The council of ministers "approved taking constitutional and legal measures to refer a draft law amending some provisions of the value-added tax to the legislative authority, which includes amending the value-added ratio starting from January 1, 2022", the Bahrain News Agency said.
Gulf countries agreed to introduce a 5 per cent VAT in 2018 to further shore up their budgets amid a drop in oil prices. Saudi Arabia, the UAE and Bahrain implemented the tax regime soon after. Saudi Arabia raised the VAT to 15 per cent in July 2020.
Oman introduced a 5 per cent VAT in April this year in a move that could help the sultanate generate about 400 million Omani rials ($1 billion) in revenue annually, which is equal to 1.5 per cent of the country's gross domestic product.
Bahrain, the smallest economy in the GCC, has faced stiff economic headwinds amid the Covid-19 pandemic. Its economy is estimated to have shrunk 5.4 per cent, driven by a sharp contraction in non-oil output, which according to International Monetary Fund projections, contracted 7 per cent.
The fund expects Bahrain’s economy to expand 3.3 per cent this year on the back of its quick response to minimise the economic fallout of the pandemic.
The country’s non-oil economy will grow 3.9 per cent in 2021 as widespread vaccine distribution revives economic activity towards pre-crisis levels, it said.