The Value Added Tax is set to make its debut in the six-nation GCC block in 2018

The Value Added Tax is set to make its debut in the six-nation GCC block in 2018, but visitors and tourists to the UAE may not get a VAT refund, at least during the initial phase, Khaleej Times has learnt.

Well-placed sources that did not wish to be quoted say millions of visitors and tourists to the emirate are unlikely to get their VAT refunded at airports and other border exit points of the country when the new consumption tax is introduced in the Gulf for the first time on January 1.

"We don't expect there to be huge refund claims for VAT at the launch stage," sources in the Ministry of Finance told this newspaper. "However, if this is not the case, the VAT refund system will be put in place at a later stage," the sources added.

The Ministry of Finance neither denied nor confirmed the report, and said that it will soon clarify the VAT implementation process in a press conference.

Bruce Hamilton, director, Indirect Tax Practice at Deloitte, said international experience shows that tourist VAT refund schemes are a common tool used by governments to minimise the negative effects of VAT on tourism and shopping, and therefore it is likely that the UAE government would, at the very least, consider introducing it.

"There has not been any official information available from the UAE government on the issue of providing VAT refunds to tourists. As a consequence, it is difficult to predict whether or not a VAT refund scheme will be introduced in the UAE," Hamilton told Khaleej Times.

On January 1, 2018, the UAE will join the club of nearly 150 nations by implementing a five per cent VAT in the country to diversify revenue sources. VAT is expected to generate up to Dh12 billion revenue in its first year of introduction, and may generate between Dh18 billion and Dh20 billion in 2019.

Atik Munshi, senior partner at business consultancy Horwath Mak, said the rules and procedures for VAT implementation are yet to be announced by the government, and it is expected that the rules will be made public before the end of first quarter of 2017.

"This will allow about nine months for preparation for those businesses affected by VAT. At this juncture, unless the rules are announced, a great deal of the procedures will be in anticipation only," Munshi told Khaleej Times.

To a question about the VAT refund to visitors and tourists in initial phase of VAT implementation early next year, he said the UAE government intends to collect VAT from end-users except for exempted items, and tourists shall be no exception. In fact, tourists are a major contributor to UAE revenues, he said.

"The website of Ministry of Finance portrays that UAE government will allow foreign businesses to recover the VAT they incur when visiting the UAE. This is important as it encourages them to do business and also, because a lot of other countries have VAT systems, it protects the ability of UAE businesses to recover VAT when visiting other countries.

"Here the wording used is 'foreign businesses' and not tourist. However, considering the UAE's inclusive foreign policy and pro-business environment, it is expected that foreign tourists will be able to collect the refund of VAT at the time of departure from the UAE. Systems at airports and other departure points are expected to be ready before the introduction of VAT," Munshi reckons.

Pankaj Mundra, chairman of Institute of Chartered Accountants of India (ICAI) Dubai, said globally, all countries give options to tourist to claim a VAT refund at the airports. This is an indirect incentive to tourists to shop, and when they see this option of refund, they perceive it as a discounted item compare to local buyers, which indirectly prompts them to buy, he said.

"Considering Dubai being a major shopping destination globally, VAT refund to tourists should be there in the law. Government can also exempt VAT on items being purchased by tourists where they can show their tourist visa and return ticket," Mundra said.

The new consumption tax will help the six-nation GCC block to generate additional annual revenues of $25 billion to provide cushion to increase infrastructure investments in low-oil price era.

"All GCC countries are currently engaged to finalise the framework on implementation of VAT in the region. Once it is reached, the six nations will have time from January 1, 2018 to January 1, 2019, to implement the new consumption tax in the region," according to a senior government official.

- muzaffarrizvi@khaleejtimes.com