VAT on hospitality in UAE: Be my guest

Hospitality experts note that the VAT will likely be applicable to a number of segments, including hotel accommodation, restaurant services and entertainment activities.

Even as experts acknowledge that the UAE's hospitality industry will be initially affected by the five per cent value-added-tax (VAT) to be levied from next year, they are confident the industry will remain resilient in the months following the introduction of the tax.
Hospitality experts note that the VAT will likely be applicable to a number of segments, including hotel accommodation, restaurant services and entertainment activities. Travellers and holiday-makers will have to pay additional costs when availing of these services.
The six states in the Gulf Cooperation Council (GCC) region have agreed to implement VAT, which will generate $25 billion (Dh91.8 billion) in tax proceeds every year.
Consumers in the UAE are expected to pay a five per cent tax when purchasing most goods and services. 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.While the imposition of VAT may initially dampen the appetite of consumers to spend, experts say the long-term outlook remains positive."Overall, this is a bold and wise move by the government. Though the VAT will be transferred to consumers as an extra cost, it allows a country to overcome its budget deficit by the growth of GDP. New job opportunities will be created which will boost the per capita income of residents, uplift living standards and jobs will be created for new graduates," said Sajan Alex, vice-president of Tablez Food Company, the F&B arm of the Lulu International Group.
Asked how VAT would affect the UAE's F&B market, Alex said: "High-end shopping malls that double as dining districts and leisure centres have always been an integral part of our lives in the UAE. A tax component added to the diner's bill will not change or affect the eating-out habit much and will not change the landscape of the F&B industry."
He said the industry is ever evolving, with lots of innovation happening every single day, and that operators would bring in new value streams for the clients to ensure the tax impact doesn't become a distraction.
"Here we are talking about a mere five per cent VAT component; if you recall, a few years ago, most casual dining F&B operators used to charge up to 10 per cent service charge on the bill and that didn't affect the industry negatively," he pointed out.
The resilience of the UAE's hospitality industry can be attributed to a healthy pipeline of hotel rooms and hotel apartments, especially in Dubai. In October 2016, the emirate celebrated an important milestone by crossing the 100,000-hotel rooms mark.
Dubai's Department of Tourism and Commerce Marketing said it expected room nights in the emirate's hotels and hotel apartments to reach 35.9 million by the end of 2018, representing a compound annual growth rate of 10.8 per cent from the end of 2015. The emirate is expected to have 134,000 hotel rooms by the end of 2018 with occupancy of 77 per cent, it said.
According to CBRE's new research, Dubai continues to attract an increasing number of overnight visitors, reaching 14.9 million during 2016, a five per cent growth over the previous year's performance. In addition, the volume of new hospitality supply continues to show an increase, with around 35,000 new hotel keys and hotel apartments potentially set to be delivered before the end of 2019.
Amruda Nair, CEO and joint managing director of Aiana Hotels & Resorts, said: "The only way the industry can prepare for the tax is by planning ahead so that the systems are in place from a billing perspective and the processes are in place with external stakeholders."
"Tourism is a large contributor to the GDP and is expected to grow in revenues to contribute 11.2 per cent of the UAE's GDP and 7.3 per cent of Qatar's GDP by 2026. It is, therefore, too large a revenue stream for governments to not consider. VAT is not a new concept for us as we have dealt with complex tax structures in India where we have to deal with double taxation on certain food items," she noted.
Siddharth Mehra, GM of La Verda Dubai Marina Suites & Villas, said the international taxation system would offer businesses good accounting practices and benchmark Dubai with other international destinations such as London which charges a 20 per cent VAT.
"With the recent announcement of this new tax, everyone is eagerly waiting to receive the detailed notification from the authorities which includes accounting procedures and even exemptions list for goods and services," he said.
"Yes, this would impact the guest/traveller per se, especially in the economy and budget segments where Dubai has recently ventured into with the opening of more Homestay, Airbnb products. However, we believe our guests will be able to distinguish us from the larger offer of products and services when they look at the overall pricing as compared to what's available."
- rohma@khaleejtimes.com