Top hotelier warns of tax rate of up to 31% after VAT is introduced

Marriott regional president says new tax, expected in 2018, could “begin to affect people’s buying decisions”
Top hotelier warns of tax rate of up to 31% after VAT is introduced
Alex Kyriakidis, the president of Marriott International’s Middle East and Africa. (ITP Images)
By Ed Attwood
Thu 23 Jun 2016 11:15 AM

Tourists and residents wishing to stay overnight in the UAE could end up paying a combined tax rate of up to 31 percent when valued-added tax is introduced, one of the region’s most senior hoteliers has warned.

Alex Kyriakidis, the president of Marriott International’s Middle East and Africa operations, said that the implications of the extra fee, on top of existing municipality and service charges of 20 percent, as well as the ‘tourist dirham’ tax, could convince customers to change hotels.

The Gulf states are expected to introduce VAT in 2018, with the rate believed to be 5 percent.

“On the face of it, it would seem benign and that’s ok if that’s all it was,” Kyriakidis told Arabian Business, of the introduction of the new tax.

“But if you were to take a [five-star] Marriott Executive Apartment with three bedrooms – at, say, AED1,000 – you’re already at AED1,200 because of the service and municipality tax, and with three rooms that’s an additional AED60 on top.

“So that’s 26 percent already on that rate. Add in VAT, and another 5 percent takes it to 31 percent and you could begin to affect people’s buying decisions.”

“And if you leave that segment and come down – and that’s the segment that you really want to encourage growth [in] because you want to diversify and bring in more people to Dubai who are very budget conscious – adding another 5 percent on top of the 20 percent could have an impact.”

Dubai’s ‘tourist dirham’ fee, of between AED7 to AED20 per room was introduced in 2014 to help cover the cost of Expo 2020 projects.

Earlier this year, Abu Dhabi introduced a 4 percent municipal fee on hotel guest bills, as well as a AED15 per night, per room charge.

“What we are saying to the DTCM [Dubai Tourism] and to government is – let’s make sure we do our analysis,” Kyriakidis said. “Let’s make sure we look at the implications through proper analysis, proper modelling, focus customer feedback to really, really understand the effect of introducing a 5 percent, let’s say, tax to the hospitality industry.

“Could you make a case for exempting the industry versus not? This is the kind of discussion we need to have with government.”

Once Marriott’s acquisition of rival Starwood is confirmed, the combined entities will have a total of 80 hotels in the UAE, with 22,000 rooms, Kyriakidis said.

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