UAE’s robust hospitality and travel sector remains unfazed by VAT impact

  • Share:

The UAE’s robust hospitality and travel sector has remained unfazed by the impact of the value-added tax (VAT) during the first few months of its implementation. The number of visitors rose 2 per cent to 4.7 million in the first quarter, while occupancy rate up 0.7 per cent to 87 per cent witnessing a sustainable growth.

Experts in the hospitality and travel sectors have described the impact of the tax as being modest or negligible.

“The value-added tax, like any other tax regimes, is part of a government’s fiscal reforms and is expected to accelerate economic growth and development of societies in the long run,” said Sameer Bagul, EVP and MD at Cleartrip Middle East. “While it is true that initial adjustments following the introduction of tax in the UAE had sent shockwaves across various industries and businesses, which have long been accustomed to minimal taxation, the travel sector has seen a modest impact as airlines remain subject to zero tax rates, thus leaving no impact on airfares.”

However, Bagul noted that travel agents and travel management companies who earn commissions and service fees have to bear five percent of revenue as cost. He further described this as an investment in the economy.

“On the other hand, hotels in the country are subjected to five percent VAT, in addition to the existing 20 percent municipality fee and service charges combined, making the average room rates costlier. Additionally, various leisure activities have seen pricing adjustments to include the five percent VAT from January 2018. Nonetheless, we have not witnessed any impact on our business despite these changes as we continue to grow very strongly in selling both hotels and hyper-local leisure experiences in the UAE,” he added.

The implementation of the VAT is likely to generate Dh12 billion in income in its first year of introduction, and may collect up to Dh20 billion in 2019. Experts have predicted that hospitality revenue in the UAE is set to increase by 10.8 percent annually to hit $9.8 billion by 2020. The government’s spending on the sector’s development is expected to grow by 4.3 percent 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.

Laurent A. Voivenel, senior vice president of Operations & Development for the Middle East, Africa & India at Swiss-Belhotel International, noted that many global hospitality brands are familiar with the tax, and haven’t faced any major challenges in terms of execution. “Typically in a hotel be it the room revenue, food & beverage revenue, telecommunications such as telephone, TV/movies and Internet revenue, conference or banquet revenue, or any other rentals, each needs to be itemised separately for accounting purposes and must be consolidated to determine the operation’s VAT liability.”