Impact of the Newly Added VAT On Hospitality Sector in UAE

The VAT has been implemented from 1st Jan 2018, Hospitality segment which includes hotel accommodation, entertainment activities, and restaurant services. An individual must have to pay additional costs at the time of availing hospitality services.

Six states in the Gulf Cooperation Council (GCC) mutually agreed to apply VAT. Through VAT, UAE government will be able to generate $25 billion (Dh91.8 billion) every year.

Every individual in UAE, are expected to pay tax for purchasing goods and services. Applying VAT to goods and services is one of the best measures taken by the government. Through this tax system, the country will be able to generate more revenue. It is expected that UAE country might generate Dh12 billion revenue in introduction year (2018) and might be able to collect up to Dh20 billion in 2019.

According to Sajan Alex, vice-president of Tablez Food Company, the F&B arm of the Lulu International Group, “However this is one of the bold and wise steps taken by the UAE government. VAT has been transmitted to consumers and VAT is an additional cost for consumers.

Through VAT, it is possible to improve the economic conditions of the country. It allows the country to fulfill the shortage of budget by the growth of GDP. There is a chance of more employment opportunities, improves the living standard of people and jobs will be created for graduates or freshers.

The Business man have to the Businesses making non-exempt supplies in excess of an amount (e.g. AED 375,000 over the last 12 months or anticipated over the next 30 days in the UAE) will be the very obliged to register for VAT. Most of the businesses operating in the hospitality industry will exceed these thresholds. after that the importantancy growing of the tourism industry to the economies of the GCC, it like that the hospitality sector will generate considerable VAT revenue for the member states.
the VAT is meant to be a simple tax. In all jurisdictions that have a VAT, difficult and complex issues arise.

The public supplies are made by the hospitality-sector and tourism sector are taxable, The suppliers to recover VAT obtain on their purchases From a VAT perspective, the hospitality and tourism sector is likely to be fairly complicated.

Hotels have multiple revenue streams – such as rooms, food, and beverages, telephones, TV and movies, internet, weddings, and conferences. Different VAT treatments may apply to each revenue stream. Time and place of supply rules also need to be taken into account.

The Restaurants have to need to understand the different VAT treatments. For some example, even if basic food items are zero-rated, The VAT must be the charged when selling cooked food?  VAT has been charged by the hotels or restaurants is on top of any existing government levied or service charges.

Is that VAT has been affected UAE’s F&B market. In views of Alex said that “Shopping malls which double the leisure centers and dining districts has always been an inherent part of UAE people. Adding tax component in dining bill will not affect the scenario of the F&B industry. It has also not changed the eating habit of UAE individuals.”

Every day, the industry is coming up with new innovation and technologies. Operators are trying to bring new streams for the clients so that tax impact doesn’t affect consumers.

Currently, we are talking about only 5% VAT component in UAE. If you remember, a few years ago, most casual dining F&B industry was decided to deduct 10% service charge in the dining bill and that time the industry didn’t affect negatively.

In UAE, the hospitality industry can be assigned one of the healthy pipelines in hotel apartments or in hotel rooms specifically in Dubai. The emirate celebrated an important milestone for crossing 100,000-hotel rooms remark.

As per Dubai’s Department of Tourism and Commerce Marketing, “Emirates hotels and apartments will be expected to reach 35.9 million by the end of 2018. It represents the compound annual growth rate of 10.8 per cent in the year of 2015. Hotel emirates will be expected to have 134,000 hotel rooms along with occupancy of 77 percent by the end of 2018.

As per CBRE’s research, Dubai is trying to attract a large number of overnight visitors and reached to 14.9 million in the year of 2016. The hospitality industry is trying to increase by opening 35,000 new hotel apartment and hotel keys by the end of 2019.

Where the hospitality purchase goods directly from approved retailers, a VAT refund scheme will be available. However, residents of GCC member states will not be eligible for VAT refunds.

The Hospitality sector is comprised mainly of the following subsectors: tourism and tour operators, hotel industry, airlines etc. The scope of Hospitality services under these subsectors is quite broad and may include:
tour packages

  •  transportation services
  •  hotel accommodation services
  •  restaurant meals
  •  ticketing fees
  •  entertainment fees (telephones, television, internet);
  • recreational fees (wedding activities and other functions); and other conferencing activities, exhibitions, etc.)
  •  service charges
  •  agency services (acting as an intermediary or principal).

CEO and joint managing director of Aiana Hotels & Resorts, Amruda Nair, said that “Proper planning is the only way to prepare the hospitality industry for taxes so that systems are in a place from the billing point and the processes are in place to external stakeholders.”

Tourism is one of the sectors which contributes higher GDP in UAE. It is expected to increase contribution in GDP by 11.2 per cent in UAE and 7.3 per cent in Qatar’s by 2026. We already deal with complex taxation structure in India, where we have to deal with double taxation on certain food items. So, this VAT is not a new concept for us.

After the announcement of the new tax, Individuals are eagerly waiting to receive the detailed notification from the government authorities which covers exemption list of goods and services and also accounting procedures.

Yes, this would affect the guest or traveler, specifically in the economic and budget segments where Dubai is trying to venture by building more Homestay, Airbnb products. We always try that our guests recognize us from the larger range of products and services we are offering to them.

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