MPs to Debate VAT Break for Clubs and Charities

TDT | Manama

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A bid to zero-rate VAT on social care services supplied to charities, clubs and youth and sports bodies will go before MPs in the next parliamentary session, despite a government warning that it would cut tax receipts without any study showing the cost to public finances.

The bill would amend Article 53 of the Value Added Tax Law and stems from a proposal lodged by MPs. It covers social care services and related goods and services supplied to social and cultural associations and clubs, as well as private bodies working in youth and sport.

MPs behind the proposal argue that such groups should receive treatment akin to that given to health and education services. They say the bodies work for no profit, deal directly with social needs and play a key part in serving communities.

The government disagrees, saying the groups already receive cash, land, premises, training and other state help and that direct aid is a better way to support them than changing VAT rules.

It also said no study was filed with the bill showing how much revenue the change would cost, how many bodies or transactions would fall within it, or its effect on state finances over the coming years.

Under zero-rating, no VAT is charged on the supply, while businesses can still deduct or reclaim VAT paid on inputs.

The government said that means the measure would both cut VAT receipts and allow input-tax repayments, creating an ongoing cost to public finances.

Associations overseen by the Ministry of Social Development already receive grants, help with rehabilitation centres and priority projects, as well as access to state land, property and ministry facilities.

They can also receive legal, financial and accounting help, along with training for board members and staff.

Cultural and arts groups receive aid under Decision No. 3 of 2015, including regular funding and help with overseas participation, travel and shipping costs.

Sports clubs and private sports bodies receive annual state funds through the General Sports Authority under Decree No. 61 of 2021 and its amendments.

That aid can cover sports grounds, repairs, equipment, refereeing, training camps and national team preparations, while clubs can also use public facilities and receive state land for sports projects.

The Youth Affairs Ministry provides financial and organisational help to youth centres and youth empowerment centres.

The government argued that such aid can be directed at named groups and needs and changed as circumstances shift.

VAT, it said, is built on a different principle and applies to transactions rather than the aims or non-profit status of the body receiving the service.

It also warned that granting different VAT treatment according to the identity of the recipient could leave economically similar transactions facing different tax bills.

The government further rejected the comparison with health and education, saying their special VAT treatment is tied to the nature of those services and the state’s constitutional duty to provide them.

Civil society groups play an important social role, it said, but their work is supplementary to the state’s functions and does not stand on the same footing as health care or education.

It argued that direct funding, facilities and other aid offer a clearer way to help such groups without cutting into the VAT base.