September 27, 2018 / 1:51 PM / 2 months ago

UPDATE 1-Bahrain plans to approve VAT, pension reform laws before election -sources

* Government to submit VAT and pension reform bills

* Parliament to hold an extraordinary session in Oct

* Bahrain will hold election on Nov. 24

* Subsidy system reform still under discussion

* Gulf allies committed to support Bahrain (Adds details)

By Aziz El Yaakoubi and Davide Barbuscia

DUBAI, Sept 27 (Reuters) - Bahrain plans to get structural reforms through parliament before a November election, including the introduction of value-added tax (VAT) and changes to the pension system, sources familiar with the matter said.

The reforms are part of efforts to fix public finances hit hard by the drop in oil prices which also pushed Bahrain’s dinar to its lowest in more than a decade.

The move paves the way for an integrated programme from Bahrain’s wealthier neighbours which have said they will support its economic reforms and fiscal stability.

Bahrain will hold a parliamentary election on Nov. 24, the second ballot since 2011 when protesters took to the streets demanding more democracy. The vote comes as Bahrain struggles to cut its deficit and ease public anger over years of austerity.

Parliament will hold an extraordinary session in October to approve the two laws, said the sources, who asked for anonymity as they are not authorised to speak to the media.

The government communication office declined to comment.

Introducing VAT at a 5 percent rate was part of a Gulf Cooperation Council (GCC) agreement in 2018, a big step for governments that have traditionally levied little tax and relied instead on oil revenues.

So far, only Saudi Arabia and the United Arab Emirates have started implementing VAT, though the International Monetary Fund says all six GCC countries remain committed to it.

Bahrain’s finance minister said earlier this year the country planned to have completed preparatory work for the tax by the end of this year, without giving a firm date for when it would be launched.

The government is still seeking a deal with parliament on changes to the subsidy system. In August, it rejected a plan that it said would break spending caps.

Bahrain’s dinar recovered from 17-year lows and its bond prices rebounded in June, after its neighbours pledged to prevent its ballooning public debt from triggering a financial crisis.

Fiscal steps already announced by the government would cut the deficit to 11 percent of gross domestic product in 2018 from 14 percent last year, an IMF official said in May. (Editing by Robin Pomeroy)

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