The Gulf Cooperation Council’s two largest economies and hotel markets, Saudi Arabia and the United Arab Emirates, introduced a 5% value-added tax on 1 January, and experts say the new taxes are a sign of the region’s growing maturity.
REPORT FROM THE MIDDLE EAST—Saudi Arabia and the United Arab Emirates, the two largest economies and hotel markets among the six Gulf Cooperation Council nations, introduced value-added/sales tax on 1 January.
The rate in both countries is 5%. In the UAE, VAT will be collected throughout the supply chain, while in Saudi Arabia, it will only be charged at the time of final supply to the end consumer.
Response from hoteliers has been the imposition of VAT has been well publicized and that it signifies a needed next step in the region’s development.
Sources added that while average daily rate currently is higher in Saudi Arabia than it is in the UAE, they still regard 5% as minimal and easily absorbed by the market.
The other four GCC nations have delayed or even abandoned the original GCC joint decision to impose the additional charge, which equally applies to hotel rooms and hospitality offerings.
At press time, Bahrain plans to introduce VAT later this year, while Kuwait and Oman now say the tax will be introduced in 2019. Qatar, though, appears to have abandoned the tax despite signing a GCC agreement dated 27 November, 2016, along with the other nations, to do so.
Individual nations are able to determine their own penalties for infractions.
Ayman Fathy, GM at the Al Diar Capital Hotel and director of operations at Al Diar Hotels, a division of Abu Dhabi National Hotels Group, said he believes guests will pay the 5% tax, as they generally do in all other countries where the tax exists.
“Already the country has been made very aware of the tax, for more than six months now, on radio and TV and in workshops, and we have informed our clients,” Fathy said.
Olivier Harnisch, CEO of Emaar Hospitality Group, said the tax was above all things a sign that the next step in the UAE’s progress is under way.
Sources have said one reason for the introduction of the tax is to diversify government income in light of slumping oil prices.
“It is a sign of the market maturing, and of course that is very common in other parts of the world,” Harnisch said.
The tax has hardly made a ripple among the larger hotel concerns.
Fathy at Al Diar Hotels, which has six budget and economy hotels in its portfolio, four in Abu Dhabi and two in Fujairah, said the UAE has not imposed a new tax on the sector for many years.
“As long as (new taxes) are not exceeding limits, the government is not doing something exceptional,” Fathy said.
He said the firm is expanding into Dubai, where it is currently not represented.
Rudi Jagersbacher, president, Middle East, Africa and Turkey, at Hilton, said the taxes are something businesses have to get used to.
“As an international operator … we are accustomed to dealing with VAT in the majority of markets where we are present,” he said. “Our focus is on ensuring each of our hotels … are equipped to make necessary changes to their operating systems to ensure a smooth implementation.”
Harnisch said at Emaar the guest will absorb the tax.
Emaar’s brands include Address Hotels + Resorts, Vida Hotels & Resorts and Rove Hotels. One of Emaar’s latest projects is an Address property at the new Dubai Harbour development.
“Every company has made their own decision, but I see no issues. The authorities have always been ready to answer questions, and we have certainly had enough time to prepare,” Harnisch added.
According to year-to-date November 2017 data from STR, the parent company of Hotel News Now, both Saudi Arabia and the UAE posted mostly negative numbers in the three principal metrics.
Saudi Arabia for the period posted a 5.6% decline in occupancy to 55.7%, a 4.6% decline in average daily rate to 724.15 Saudi Arabian riyals ($193.08) and a 9.9% decline in revenue per available room to 403.21 riyals ($107.51).
For its capital city, Riyadh, the relevant numbers for the same period are occupancy of 53.5%, down 1.5% from the same period in 2016; ADR of 710.79 riyals ($189.52), down 8.7%, and RevPAR of 380.39 riyals ($101.42), down 10%.
The United Arab Emirates’ two principal cities, Abu Dhabi and Dubai, for the same period also performed poorly.
Abu Dhabi saw a 6.2% decline in ADR to 432.42 Emirati dirhams ($117.73) and a 5.8% decline in RevPAR to 308.72 dirhams ($84.05), while Dubai showed a 4.2% decline in ADR to 665.65 dirhams ($181.23) and a 3.9% decline in RevPAR to 511.45 dirhams ($139.25).
Both UAE cities showed very slight occupancy increases for the period, up 0.3% in Abu Dhabi and up 0.2% in Dubai.