VAT will not dampen a tourism market set for Expo boost, experts say

Travel experts expect the Expo 2020 event to boost the travel and tourism sector in the United Arab Emirates (UAE), while they see no major impact from the introduction of the new value-added tax on the sector, despite the fact that no system is yet in place to allow tourists to recoup VAT payments.

“The UAE is geared towards making Expo 2020 a game-changing success,” Mamoun Hmedan, managing director for travel website Wego told Zawya in an email interview last week.

“To this end, concerted efforts are being made from improving infrastructure to destination marketing investments and even attracting greater foreign investments. These initiatives are sure to position Dubai as the ‘first choice’ for the international leisure and business traveller – before, during and even after the World’s Fair.”

Hmedan, whose site targets customers in the Middle East, North Africa and India, also said that the new value-added tax (VAT) at a standard rate of five percent that was introduced in the UAE from this month is not yet likely to have a negative impact on the travel and tourism sector.

“It is still rather early to form an opinion about the impact of the newly-imposed VAT on any sector. Yet it is heartening to note that international and domestic flights have been exempt from the new VAT charges in the UAE,” Hmedan said.

“Also, according to the official executive regulations released by the Federal Tax Authority (in November 2017), tourists to the UAE will be able to reclaim VAT on their purchases when exiting the country. However, the details relating to the implementation of this refund scheme are yet to be announced,” he added. 

Travel and tourism’s direct contribution to the UAE’s economy is forecasted to grow by 5.1 percent between 2017-2027, according to a report issued by the World Travel and Tourism Council (WTTC) in March last year.

The WTTC’s report studied the economic performance of the travel and tourism sector in 185 international states and said the travel and tourism will contribute $31.6 billion to the UAE’s economy by 2027, or 5.4 percent of total GDP. The direct contribution made by the tourism sector to the UAE in 2016 stood at at $18.7 billion, or 5.2 percent of GDP.

Hmedan said the Expo 2020 event is expected to attract over 25 million visitors – 70 percent of whom are forecasted to be international tourists.

“To support this influx of tourists, the creation of more than 300,000 new job opportunities is also expected. The spike in tourism is also set to buttress the nation’s coffers with significant foreign exchange earnings,” Hmedan said.

According to the WTTC report, the travel and tourism directly supported 317,500 jobs in 2016. That number is expected to rise to 410,000 jobs in 2027.

What will happen after Expo?

Clement Wong, the CEO and founder of BeMyGuest, a Singaporean travel website that is focused on travel activities in Asia, said that while the Expo event could introduce a new range of travellers to Dubai, the sector’s main challenge is how to maintain visits after the event ends.

“The real value lies in maintaining the attraction beyond 2020 as a permanent display that continues to draw visitors to Dubai,” Wong told Zawya in an email interview on Thursday.

The WTTC’s report said that investment in the travel and tourism sector was expected to fall by 0.2 percent in 2017, but to grow again by 11 percent over the ten-year period from 2017-2027, to reach $20.3 billion by 2027.

Although tourism numbers have continued to grow in the UAE following the decline in oil prices that began in 2014, hotel room rates have come under pressure as occupiers have cut costs to attract guests. A report by accountancy firm EY’s MENA Hotel Benchmark found that Dubai hotels witnessed a 2.4 percent year-on-year drop in occupancy numbers in October 2017 as more hotels come onto the market ahead of the Expo event. Revenue per available room dropped by 8.7 percent to $236 per night in the same period.

“The key challenge facing the growth of the sector in the UAE and GCC is perception, in terms of stability and security, especially with Western tourists,”  Wong said. “However, the region has done an amazing job thus far in diversifying its sources of tourists, focusing now on attracting tourists from sources such as China, with its introduction of visa-free travel for Chinese visitors in 2017,” he added

The UAE announced in September 2016 that it will grant free visas on arrival to visitors from China for 30 days, according to the UAE government’s official portal.

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