Despite this, Farouk told us he is confident that hoteliers will not need to employ extra staff to cope with addition systems and administrations. “They will need to train their people. Training is very important. Whether the calibre of existing people will evolve with training is a different story. But I don’t think you will need to hire additional people,” he said, echoing Harding’s comments on training.
There have been concerns from some that the introduction of VAT will cause inflation, as well as a drop in demand in the hospitality sector. Farouk told us that he considered this a “short-term perspective”.
“You go to a restaurant, and normally pay AED 300 for a meal. But now, the bill comes to AED 315. Are you going to not go out tomorrow?” Farouk retorted.
“First of all, we are talking about something that is going to happen in 2018. There are a number of elements today that have started impacting the economy. You have oversupply in hotels. There is the geo-political situation. You have the election in the US. Global tourism is impacted. Regardless of if I increase or reduce room rates by 10%, it is not going to impact tourism. 5% is not going to make people change what they do.”
Farouk also suggested that, in order to avoid a drop in demand, hotels and restaurants will have to take some responsibility for their pricing structures. “So, you are eating at that restaurant, and instead of that restaurant charging you AED 315, they could charge AED 305, or AED 307, to ensure that guests still come in” he adds.
It is a sentiment echoed by Harding: “We’ll just have to be a little careful whether we absorb that in the current pricing or have it on top of the current pricing. We have municipality fee at 10%, service charge at 10%, tourism dirham at AED 20 per bed, so all these things start to add up.”
“We already know that the dirham is pegged to the dollar, and the dollar is very strong. The euro is extremely weak, as is the rouble. Already we’ve seen this year occupancies are flat on last year. But rates are 9-10% down. There are a couple of other things going on that we just have to be aware of, and particularly strategic about. We don’t want to out-price ourselves with what’s going on in the world.”
The VAT news has also been followed by some anxiety as to whether additional taxation measures such as income tax and corporate tax could follow. Farouk comments: “It was mentioned in June 2015 that corporate tax is coming. There’s a lot of discussion now on how the GCC should be completely aligned. One of the notions about VAT, and why they are giving this time frame, is that they want to align VAT across the GCC, so it doesn’t impact trade agreements,” he said.
“Now, if you look at the GCC, it is only the UAE and Bahrain that are tax-free. So, ultimately, if the majority has VAT and corporate tax, if you want to keep that notion of GCC alignment… Now, there is no income tax in any of those countries, so we don’t expect income tax to come in,” he concluded.
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Jun 29, 2016 , Nigeria
VAT is a normal charge for Hotel operations & users and will not be anything new should the government of UAE introduce it come 2018. It is paid by guests and suppliers not the hotel. The main issue if I understand it, is that there are already too many additions to the guest's bills that will ...