Retailers and the tourism industry have reacted positively to the announcement that visitors to the UAE will soon be able to claim back any value added tax (VAT) they are charged.
On Wednesday, the UAE cabinet agreed to put in place a system that will allow tourists to receive refunds on the five per cent tax they pay on goods, starting from the fourth quarter of 2018.
When asked by Gulf News, retail analysts expressed some doubt that the move would be enough to overcome some of the retail sector’s more structural challenges, such as high rents and an oversupply of mall space.
From the government perspective, however, allowing tourists to reclaim their VAT brings the UAE in line with international standards.
Both Dubai and Abu Dhabi’s tourism authorities said they welcomed the news and the boost to tourism that it will bring.
“The UAE’s leadership has long recognised the importance of tourism to the national economy, and this move to implement a value added tax refund system for tourists will ensure the sector’s competitiveness globally and drive further growth in its GDP contribution,” said Helal Saeed Al Merri, director-general of Dubai Tourism, adding that as retail continued to be a key reason many tourists came to Dubai, he expected “to see significant numbers of tourists taking advantage of their shopping opportunities in Dubai”.
Abu Dhabi’s tourism board, for their part, said that the move would further strengthen its strategy of positioning Abu Dhabi as a visitor-friendly destination.
The country’s two largest home-grown hotel groups also expressed support for the decision.
Olivier Harnisch, chief executive officer of Emaar Hospitality Group, told Gulf News that the implementation of the VAT refund system for tourists was a positive step, that would “further drive the growth of the UAE’s tourism, hospitality and retail sectors”.
“VAT refunds for tourists are a common practice in many countries, and will catalyse retail spend across all sectors. It will also contribute to strengthening the nation’s appeal as a tourist destination, in turn, driving the growth of the hospitality sector, including hotel bookings and restaurant spend,” he added.
A spokesperson for Jumeirah, the state-owned hotel owner and operator, said that the company supported the Cabinet decision.
“It is good news for tourists, and that means it is good news for business too,” they said.
Tourism contributes heavily to UAE’s economy; in 2017, nearly 16 million people visited Dubai, while a further 123 million passengers travelled through the country’s airports.
In total, the tourism sector contributed 11.3 per cent to the UAE’s GDP in 2017, equivalent to Dh154.1 billion.
The UAE’s hospitality sector is projected to employ more than 659,000 people by 2026, according to a study conducted by Knight Frank, the real estate consultancy.
Retailers, too, said that they were pleased by the decision, which is expected to increase the spending of tourists on holiday in the UAE.
Firoz Merchant, the founder and chairman of Pure Gold Group, said in a statement: “This move will attract more tourists, bolster the retail business and industry thereby driving the growth of the economy.”
Analysts, however, said that while it was a step in the right direction, it wouldn’t have a significant impact of the retail sector.
“I don’t see it as a massive driver. But it comes at a time when retail is struggling. We’re seeing more pressure, lower sales, and rents coming down across the market. Plus, with the looming impact of future supply, we’re entering a period of commonplace rental deflation,” said Matt Green, head of research at CBRE, a property consultancy.
Therefore, Green added, “anything they can do to increase tourist spending is a plus”.
The new measures introduced by the government over the past few months had seen the UAE cement “itself as number one in the Middle East for corporate tenants and tourists alike”, he said.
Gary Sweeney, brand manager at retailer Ascots & Chapels, said that from a retail perspective, it was very good news.
“It’s bringing us in line with what many other countries already do,” he said, adding that it may attract a greater spend from tourists.
Sweeney said, however, that there were other issues that currently weighed more heavily on his industry.
“It’s a good step forward, but more can be done to give retailers a break, who in turn can give their consumers a break.”
Refund process abroad
Dubai: So you just spent a roll of cash while visiting another country and you learn that you can get a refund for the Value Added Tax before you leave ranging from 5 per cent to more than 20 per cent.
The process, depending on the country, is usually straight forward.
As many as 140 countries around the world have VAT, says financial firm KPMG.
Collect your receipts for purchases — in most countries, you can’t claim VAT for hotel stays and meals — and when in some stores, ask the cashier if she can give you your VAT refund on the spot at the time of sale. You will need to show your passport.
For those who can’t be bothered to ask for refunds at every retailer, many travellers simply wait until they reach the airport and before they board the aircraft, then present their receipts to the VAT Refund Counter which in most countries will return the VAT you paid during your visit.
The VAT varies according to each country and many countries have minimum spend limits for refunds from $25 to $250.
This year, in Canada, the tax is around five per cent while in Brazil it is as high as 18 per cent, according to KPMG statistics.
In Ireland, the VAT is 21 per cent, in Norway it’s 25 per cent, while in Pakistan, it is 17 per cent.