Bahraini legislators approved a draft law on Sunday that would see value-added tax (VAT) imposed for the first time in the kingdom, state news agency BNA reported.
The House of Representatives approved a Gulf Arab agreement to introduce VAT after a royal decree ordered parliament to hold an extraordinary session on Sunday, BNA reported, without giving details of the vote.
The move came a few days after Saudi Arabia, the UAE and Kuwait offered a $10 billion aid package to avoid the risk of a debt crisis in the country, which was also tied to fiscal reforms.
The bill is yet to be approved by the parliament's upper house, which is expected to hold a similar session later this week.
Introducing VAT at a 5 per cent rate was part of a GCC agreement in 2018, a big step for governments that have traditionally levied little tax and relied instead on oil revenues.
Other reforms, including changes to the pension system and a new subsidy programme, are still pending as part of Bahrain's efforts to fix its public finances.
Bahrain has been hit hard by a drop in oil prices in recent years, with its dinar sliding to its lowest in more than a decade.
It released a 33-page fiscal plan on Friday to fix its debt-burdened finances and essentially abolish its budget deficit by 2022.