DUBAI (Reuters) – Bahrain is considering doubling value added tax to 10% to boost state revenues and reduce its budget deficit, a Bahraini parliamentary source and a source close to the government told Reuters, confirming local media reports.

The communications office of the government did not respond immediately to our request for comment.

According to the International Monetary Fund, Bahrain’s economy suffered a 5.4% decline in economic activity last year. This was due to the impact of the pandemic on vital industries such as tourism and energy.

This small Gulf country has built up a huge debt pile since the 2015-2015 oil price shock. The Gulf allies provided $10 billion of financial aid in 2018 to help the state avoid credit crisis.

According to a source, parliament and the government are currently discussing amending the law on VAT at 5%, which Bahrain implemented in 2019. This was part of its plans for fixing its finances and increasing non-oil revenue.

The source said that Parliament has to approve any changes to the law. This was because the government wanted to help people on low incomes if the legislation were to be changed.

According to the source, there are other ways of boosting state finances.

Bloomberg, reporting on Sunday that Bahrain would double its VAT, quoted an unnamed government official.