Bahrain Plans Fuel Hikes, Tariffs and Corporate Tax

Bahrain targets revenue boost with fuel hikes, tariffs and corporate tax plan

Dubai: Bahrain has announced a wide-ranging set of fiscal reforms aimed at strengthening public finances, marking one of the most significant adjustments under the kingdom’s ongoing economic reform programme. The measures come as the country faces mounting pressure from rising debt levels and increased scrutiny from credit rating agencies.

The reform package includes higher fuel prices, increased electricity and water tariffs, higher natural gas prices for industrial users, and a 20 per cent reduction in government administrative spending. Together, the steps are designed to improve fiscal sustainability and reinforce confidence in Bahrain’s medium-term financial outlook.

Corporate income tax marks major policy shift

Among the most notable measures is Bahrain’s plan to introduce a new corporate income tax law targeting domestic companies. The move represents a major change in the country’s tax framework, which has traditionally relied on indirect taxes and fees rather than broad-based corporate taxation.

While the government has not yet provided a timeline for implementation, officials indicated that the proposed tax forms part of a broader effort to diversify revenue sources and reduce reliance on debt financing.

Pricing reforms and higher fees introduced

Fuel prices will now be linked to a newly introduced monthly pricing mechanism, allowing domestic prices to adjust more closely to market conditions. Taxes on carbonated beverages are set to rise, while higher dividend distributions are expected from state-owned enterprises.

Additional revenue measures include increased municipal fees on undeveloped investment land, alongside higher electricity, water and gas tariffs. These steps are expected to place greater cost pressures on households and businesses, but authorities say they are necessary to stabilise public finances.

Fiscal pressure and credit rating concerns

The announcement follows a recent downgrade of Bahrain’s sovereign credit rating by an international ratings agency, which cited rising government debt and a growing interest payment burden. The agency has forecast a fiscal deficit of 7.6 per cent of gross domestic product in 2025, higher than earlier estimates.

Despite these challenges, Bahrain has continued to access global debt markets, raising around $5 billion this year. Strong demand, particularly for Islamic bonds, has helped the kingdom maintain funding access even as fiscal pressures intensify.

Regional implications for investors

Bahrain’s reforms reflect a broader trend across the Gulf, where governments are recalibrating fiscal models in response to higher borrowing costs and long-term sustainability goals. For businesses and investors operating across the region, such policy shifts are increasingly shaping decisions on cost structures, compliance and regional allocation of capital.

As Gulf economies evolve, regulatory clarity and tax certainty remain key considerations for companies planning regional footprints, including those weighing long-term strategies linked to business setup in dubai