VAT IMPACT ON HOSPITALITY SECTOR
Like any other tax regime, the value added tax is a part of government’s fiscal reforms which was implemented to accelerate economic growth and develop societies in the long run. The initial adjustments which took place followed by the introduction of tax in the UAE which had sent shockwaves across various industries and businesses which were long accustomed to minimal taxation.
HOW MUCH HAS HOSPITALITY SECTOR BEEN IMPACTED BY VAT ?
The hotels in UAE in addition to the existing 20% municipality fee and service charge are also subjected to 5% VAT, which make average room rates costlier. Along with this various other leisure activities have also been subjected to pricing adjustment to include 5% VAT.
PROBLEMS BEING FACED BY THE INDUSTRY
The businesses that make non exempt supplies in excess of an amount will be obliged to register for VAT and most of the businesses which are operating in the hospitality industry would have to register for VAT since they exceed these thresholds.
Different supplies attract different VAT rates which affect the VAT recovery position of a taxable person. Hospitality industry has a mix of a number of supplies which begin at the same time which makes identification of separate elements difficult. This complex issue has resulted in many disputes and VAT litigation.
The status of VAT for forfeited deposits for late cancelled rooms is still unclear.
The anxiety of the domestic and international hotel guests to understand the extent to which they can recover VAT has imposed a burden on the owner to be careful by ensuring that he is not breaking law by misinvoicing.
The UAE’s robust hospitality sector has remained unfazed despite of all the problems during the first few months of its implementation since the number of visitors have arisen from 2% to 4.7 million in the first quarter while the occupancy rate upto 0.7% to 87% has been witnessed as a sustainable growth. The impact has thus been modest or negligible.