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.

According to the Ministry of Economics, the tourism trade will come under the ambit of Value Added Tax (VAT). Tourists are a signifi- cant 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 up-to-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.”

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