Why the hospitality sector sees VAT as an opportunity

Source: Khaleej Times
Contributed By: Rohma Sadaqat
Published on October 29, 2017

New levy a step to ensure excellent quality of life in the UAE will continue

As the date for the implementation of value-added-tax (VAT) draws closer, hospitality and tourism experts are still trying to gauge the complete impact of the tax on visitor behaviour.

In any case, all of them see the tax as an opportunity for the industry.

“VAT is certainly a step in the right direction as it has the advantage of being harder to evade when compared to a general retail sales tax,” said Laurent A. Voivenel, senior vice-president of operations and development for the Middle East, Africa and India at Swiss-Belhotel International.

He further told Khaleej Times that VAT can be termed as an essential ‘benefit charge’, as it will serve as a source of revenue to fund the UAE’s robust programmes for public safety, welfare and infrastructure.

“We enjoy an excellent quality of life in the UAE and VAT is a step to ensure we continue to do so,” he said. “In fact, in the UAE we are being charged considerably less compared to countries like UK where standard VAT is 20 per cent. It remains to be seen if tourists here will be given the option to obtain a tax refund at some point, as observed in some countries.”

Asked how prepared the company was for the rollout of the tax, Voivenel replied: “VAT is not new to Swiss-Belhotel International. In the UAE, we have already done the registration for VAT and our audit firm has prepared the necessary roll out plan that will be implemented from January 1, 2018. We are ensuring full compliance to ensure a smooth operation and all our customer facing communication, including booking confirmations, carry the necessary information regarding this.”

GCC states have agreed to implement VAT, which will generate billions in tax proceeds every year. The new tax, which is part of a move to diversify the country’s revenue sources, is likely to generate Dh12 billion income in its first year of introduction, and may collect up to Dh20 billion in 2019.

VAT will likely be applicable to a number of segments, including hotel accommodation, restaurant services and entertainment activities. Consumers in the UAE are expected to pay a five per cent tax when purchasing most goods and services.

Experts predict that hospitality revenue in the UAE is set to increase by 10.8 per cent annually to hit $9.8 billion by 2020. The government’s spending on the sector’s development is expected to grow by 2.2 per cent this year and by 4.3 per cent over the next decade. Furthermore, with the opening of new attractions such as theme parks and the development of specialty entertainment areas, the UAE will continue to be a preferred destination for tourists from around the world; leaving experts optimistic about the hospitality industry’s growth in the coming years.

Like Voivenel, Russel Sharpe, COO of Citymax Hotels, said that the company is ready for VAT.

“We have been working with PwC on the implementation at Citymax Hotels. We have already got our VAT number that will be indicated on all reservations from the beginning of next year. VAT will need to be paid by guests at the time of check-in from January 1, 2018. This is being communicated in all our consumers facing collateral, be it e-mails or booking confirmations, as well as on our website.”

He also explained that the VAT is one of the most common types of consumption tax found throughout the supply chain, and is implemented in over 150 countries by governments around the world through businesses who act as intermediaries to collect it.

“The VAT rate in the UAE has been deliberately set low so that it has a limited burden on consumers,” he emphasised. “VAT will provide the UAE with a new source of income, which will contribute to the continued provision of high-quality public services such as infrastructure, parks, waste control, public schools, hospitals and police services into the future.”

Speaking on the steps that have been taken to educate customers on what they can expect once the VAT is implemented, Anne Scott, general manager at W Dubai – The Palm, said: “We are as open and transparent as it is possible to be; and have included the VAT element in all contracts and all reservation confirmations. We have also made it an open dialogue with travel agents and partners, and have set it up on templates for all quotations and billing.”

She added: “I can hear many naysayers predicting doom and gloom of the impact of VAT. I’m sure that VAT will be a subject of conversation in the first year, and possibly some hiccups while the implementation plans work through. However, Dubai is not a price-led destination – Dubai is a vibrant, world-class travel destination. Our mission as marketers is to continue to promote exceptional customer experiences and outstanding value for money.”

Haitham Mattar, CEO of the Ras Al Khaimah Tourism Development Authority, noted that while the full details of the VAT implementation are still being defined, it is not a measure that is likely to impact the tourism industry, which already contributes a significant portion of the GDP of the country.

“VAT is a common phenomenon in many countries around the world so tourists are familiar and accustomed to that,” he said.

“They will continue to travel to destinations like Ras Al Khaimah and the UAE to enjoy the diverse and high-quality offering, unique landscapes and world-class hotels and attractions. The impact in terms of cost is likely to be very minimal, especially when weighed up with the other benefits of the destination.”

VAT Implementation in Dubai