UAE tourism gears up for VAT

Fol­low­ing an an­nounce­ment that Value Added Tax (VAT) will be im­ple­mented in the UAE from 2018, sev­eral tourism or­gan­i­sa­tions have been host­ing work­shops to ed­u­cate all travel seg­ments about it.

TravTalk - Middle East - - FRONT PAGE - SHEHARA RIZLY

Ac­cord­ing to the Min­istry of Eco­nomics, the tourism trade will come un­der the am­bit of Value Added Tax (VAT). Tourists are a sig­nif­i­cant part for the UAE and will have to pay VAT at the point of sale. How­ever, they have set the VAT rate very low so that it will be a limited bur­den on all con­sumers. Rakesh Par­dasani, Part­ner, RSM, world’s sixth largest net­work of in­de­pen­dent au­dit, tax and con­sult­ing firms in over 70 coun­tries, speaks about how the im­ple­men­ta­tion of VAT will af­fect the tourism and hos­pi­tal­ity sec­tor.

“VAT will have a ma­jor im­pact on the hos­pi­tal­ity sec­tor in the UAE. Since the last few years, sup­ply has been in­creas­ing which is putting pres­sure on the room rates. In ad­di­tion, the Tourism Dirham was levied and now there will be an ad­di­tional 5 per cent VAT. Ma­jor ho­tel chains are al­ready de­bat­ing as to how much of the 5 per cent can they ac­tu­ally charge to the cus­tomers with­out im­pact­ing the buy­ing de­ci­sion. But all th­ese charges and taxes are now slowly adding up to the end cost of rooms,” says Par­dasani.

Most of the hos­pi­tal­ity chains are pre­par­ing them­selves for VAT in fact their rates start­ing next year in­clude the VAT per­cent­age so that the guests are made aware of the new changes which will make it more trans­par­ent. In terms of the travel agents, there will be a dif­fer­ent work for­mat for VAT and in our next is­sue we will give you a more upto-date in­for­ma­tion from dif­fer­ent part­ners.

“On the travel agents side, how­ever, the con­cerns are a lit­tle dif­fer­ent as they need to have ad­e­quate sys­tems to cap­ture VAT in­puts and out­puts and cal­cu­late their VAT li­a­bil­ity ac­cu­rately. The large or­gan­i­sa­tions, ho­tels etc. have al­ready be­gun prepa­ra­tions on VAT im­ple­men­ta­tion as it needs ma­jor changes in their IT sys­tems. But a large num­ber of smaller travel agents will face some dif­fi­culty in clearly un­der­stand­ing their li­a­bil­i­ties and com­ply­ing with it,” states Par­dasani.

Ac­cord­ing to ex­perts, the end re­sult will bring forth more rev­enue to be utilised for all the planned tourism in­fra­struc­ture fa­cil­i­ties. Par­dasani con­cludes, “In the end, we can ex­pect the in­creased rev­enue from VAT (which is es­ti­mated to be AED 12 bil­lion in the first year) to be re-in­vested in the coun­try, in in­fra­struc­ture, in tourism projects and so on. The only sil­ver lin­ing that I can see in this new regime is that the VAT rate has been kept at a low level of 5 per cent. This rate is not very high to sig­nif­i­cantly have an ad­verse im­pact on the econ­omy.”

Travel agents need to have ad­e­quate sys­tems to cap­ture VAT in­puts and out­puts and cal­cu­late their VAT li­a­bil­ity ac­cu­rately

Rakesh Par­dasani Part­ner RSM

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