VAT on retail and tourism: No big deal
The segments remain the strongest pillars of Dubai’s economy
Consumers in the UAE may be hesitant to part with their cash in the months immediately following the implementation of the value added tax (VAT), however experts say the impact of the tax will not be very harsh on the country’s retail and tourism sectors.
Both the sectors, experts say, have been major contributors to the UAE’s gross domestic product (GDP), and will continue to deliver strong and steady results after a short period of negative output.
“For many years now, the retail segment has been one of the strongest pillars of Dubai’s economy,” said Majid Saif Al Ghurair, chairman of the Dubai Chamber of Commerce and Industry. “Through the efforts of the government, many retailers from around the world have come and established themselves in Dubai and the rest of the emirates. They are drawn to Dubai by the excellent infrastructure, connectivity, as well as its proximity to other markets in the region.”
Speaking on the sidelines of the recent World Retail Congress in Dubai, the chairman said he believed that the “impact of the VAT on the retail segment will not be huge”. “Retail is an ever-evolving segment in the UAE,” he pointed out. “The VAT will enhance the retail sector in the UAE. In the beginning, consumers might be hesitant to spend, but they will slowly adapt. Also, if the government sees that the consumers are having difficulties then you can be certain that they will look into revising the process. At the end of the day, this tax is all about competitiveness.”
“The data and information alone that will be generated by the VAT will be tremendous,” Al Ghurair added. “This information will be crucial for the government to plan the future of any industry in the country. The authorities will use the information from the retail segment to attract more consumers to the UAE and this will lead to more consumer spending. The income generated by the tax will then be used to invest in upcoming projects across the UAE, generating more jobs. We are not afraid of the VAT, but it is very important for us to educate people about the tax and how it will prove to be beneficial to them.”
Niranjan Gidwani, CEO of Eros Group, also shared his thoughts about how the tax will affect consumer spending in the electronic sector once its rolls out. “There will be an initial impact on sales once it comes into action. Customers will need some time to see how this impacts their regular expenses. Once this is done, customers will adjust to the new costs and prices in the market.”
Like Al Ghurair, he was quick to point out the many benefits of the tax. “The VAT is a good initiative that will benefit the economy as a whole. An improved economy will always result in better sales. We fully support this policy and have already initiated processes to be compliant from day one.”
When asked about how the news of the VAT will be received by travellers to the UAE, Geet Bhalla, CEO and co-founder, Holidayme.com, said that the VAT is not a new phenomenon around the globe. “Everywhere in the world there is VAT and people would generally not become averse to travelling to a destination because of the introduction of VAT. People travel to destinations to experience the destination and on that count there is plenty to offer from Dubai and the UAE.”
“We need to look at what the UAE offers to tourists, given that we have two main destinations, Dubai and Abu Dhabi, and the other places like Fujairah and Ras Al Khaimah. In general, the country has much more to offer and people will continue to enjoy that; and with the influx of newer avenues to attract tourists, the country will continue to ensure that tourists keep flowing in.”
Bhalla also noted that the tax is a necessary step because it ensures the overall wellbeing of the economy from a future standpoint and from a longevity standpoint. “I personally don’t believe that the impact is very high. While the spending may go up, it is not really going to pinch pockets. And more importantly, people who are travellers already know that VAT is a common phenomenon around the world, which should not have an impact. Also, most countries have a VAT refund system, and I would imagine that UAE would also have a VAT refund system when people go back to their own country.”
Markus Thesleff, co-founder and MD of Dubai-based boutique hospitality company, Whissle Group, noted that tourism and hospitality operators will have to fully pass the expenses of the tax on to guests, and that this would make Dubai an even more expensive tourist destination than it already is. This, he said, is especially a concern given the current challenging market conditions, as well as the high value of the US dollar.
“But, we believe its a fiscal necessity where the long term gain far outweighs the short term discomfort,” he stressed.
“In the short term, it may cause some confusion as people come to grips with the concept and mechanics — especially local suppliers and vendors — but most of the senior and international operators are used to the VAT concept from previous markets. The key for us will be staff training and communication so that our staff fully understand the concept and in turn are able to explain it to our guests.”
— rohma@khaleejtimes.com