At the beginning of the year, all people across the globe faced the news of 5% VAT implementation in the UAE. It led to a lot of fierce debates on how VAT will affect the nation’s economy and businesses. Some people said that it was one of the best measures taken by the government; others were a bit anxious and predicted that the economic situation in the UAE would worsen. It has been more than six months since VAT implementation in the UAE, so it’s time to draw certain conclusions.
In this article, we will look at the influence of VAT on the hospitality industry in the UAE.
Most experts in the hospitality and travel industries described the impact of VAT as insignificant – the taxes in the United Arab Emirates are at one of the lowest rates in the world, so they do not negatively affect the success of any businesses in the country.
According to Sameer Bagul, EVP and MD at Cleartrip Middle East, VAT implementation in the UAE hasn’t had a great impact on travel sector. All airlines remain subject to zero tax rates which mean airfares will stay at current levels. He also added, “The travel companies who earn commissions and service fees have to bear five percent of revenue as cost. This is also an investment in the economy.”
As for the hospitality industry, the introduction of VAT has affected all hotels’ standard operating procedures and caused several challenges.
Upgrading accounting systems
First, hotel asset managers were forced to update all accounting systems, so that documentation could be filed accurately. In addition, hotels needed to learn on how to account for VAT correctly when receiving advances and deposits from the customers. Sometimes it happens that the tour operator supplies services on behalf of the hotel, but doesn’t share the sales report with the hotel in time. As a result, the date of supply is wrongly established causing the incorrect accounting of VAT.
Hotel staff training
Secondly, it took much time to train hotel staff on how to work with the VAT system. Nowadays in the UAE, there is a great number of VAT courses that offer different services and help equip hotel staff with the knowledge, skills, and confidence to work with VAT. According to statistics, a hotel needs averagely about 125 hours of work per year to comply with VAT rules.
On the top of that, VAT implementation in the UAE helped create lots of new jobs for tax and accountancy executives. Some hotel owners hire VAT experts that can provide them with practical advice in dealing with new taxes.
The next point is a price increase. The average room rates in the UAE have slightly gone up because of the existing 20% municipality fee and service charges and the introduction of VAT at the beginning of the year. In addition, the Value Added Tax is also the reason why the prices for various hotel leisure activities have increased. However, the VAT rate is very low, so it will not be a burden for any buyer in the UAE.
To sum up, VAT is a new tax in the UAE, and both ordinary citizens and business people are learning to live with it. Despite all difficulties related to VAT implementation in the UAE, the new tax will definitely help improve the already good economic situation in the country. According to Dubai government, the ﬁrst year of the VAT is expected to bring about US $3 billion in government revenue, while in the second year it is predicted to rise up to the US $5.4 billion.