Too heavy a tax on tourism can hurt revenues. Early and excessive rates would have consequences on not just the sector alone

File picture of a tourist passing the Marina Bay Sands casino and resort in Singapore.

In the post-independence era from the 1950s to 1960s, many countries looked at their colonial agricultural sectors to drive growth and industrialise as part of a larger economic diversification effort. The effort, however, was not directed at expanding their agricultural sectors, rather planning and enacting economic policies that effectively taxed colonial commodities, including food crops like maize and wheat as well as cash crops like cotton.

The way this was accomplished was nothing short of fascinating, despite its shortcomings. Countries retained and empowered colonial marketing boards that were responsible for buying food in bulk at previously set prices from farmers before selling them later to domestic industries or channelling them to world markets. The role of those marketing boards served as a check on food prices by making sure cheap food is available for urban populations even as they disadvantaged rural populations.

The case for cash crops like cotton was quite similar, except that cheap cash crops were beneficial mainly for domestic industries, which by way of import licenses and quotas were, in effect, further subsidised.

Taxes can be a growth hurdle

While industrialisation and economic diversification are key for economic growth, premature taxation of an economic sector that is driving such growth can result in negative consequences for the whole economy. Countries are now repeating the same when it comes to tourism, a key sector for economic diversification and a significant earner of foreign currencies for many.

Taxes on tourism vary and imposed for one or more of the following reasons. One, to limit the number of tourists and thus reduce a strain on countries’ resources and infrastructure. Two, to discourage certain segments of tourists from visiting. Three, to increase government revenues and diversify their sources.

Varied taxing

Some countries impose flat rates paid directly by tourists such as the one imposed in Bhutan. Other flat rates are referred to as “departure” fees in countries such as Japan and islands in the Caribbean. In US and the UAE among others, tourism taxes are reflected in hotel rates. For a country like the UAE, premature and excessive taxation on tourism would negatively affect its economic diversification efforts and undermine its position as a tourist hub.

Similar to the case of high taxation on colonial agricultural sectors post-independence, those tourism-related taxes are not necessarily imposed on tourism sectors that have matured fully into drivers of economic growth. At high enough rates, those taxes can cause permanent damage to tourism as they deprive the sector from income that is not only important to sustain it, but essential to drive future investments and growth.

Premature taxation of tourism can also hinder economic diversification efforts, more so for countries that have become significantly reliant on it for growth.

Therefore, and for countries to better balance income from tourism with limitation on arrivals for whatever reason, the following must be taken into account when deciding on tourism-related taxes, whether flat and departure rates or taxes reflected on hotel rates.

* First, and before the imposition of tourism-related taxes, countries must have a clear understanding of their standing in international tourism and how price elastic their tourists are to hikes in prices because of tourism-related taxes. After all, higher taxation rates will lower the number of arrivals, but with revenues from tourism-related taxes compensating for that.

This is again subject to tourists’ price elasticity.

*Second, before imposing those taxes too, countries must study the maturity level of their tourism sectors and whether or not there is further room for thes to grow in prominence and support of economic diversification. As hinted earlier, this is even more important for countries like the UAE. A premature and excessive taxation on tourism, in the context of regional and international competition, could impede tourism in the long term.

* Third, tourism-related taxes that affect hotel rates and restaurant bills lower tourism spending in the country, which consequently and by association alters the mix of tourists visiting as cities become too expensive to visit. This could be observed in cases where the number of international tourist arrivals have gone up, but their overall spending has gone down.

In the long-term, this would lower income from both the sector and its taxes.

The last thought that I want to leave you with: Why are hotels and restaurants in the UAE allowed more than 40 per cent plus of taxation?

Abdulnasser Alshaali is a UAE based economist.

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All the drinks that will be taxed in UAE: FTA Ready-to-drink beverages with at least 75 per cent milk, baby formula to be exempt

Abu Dhabi: The Federal Tax Authority (FTA) on Saturday clarified what qualifies as sweetened drinks and electronic smoking devices that will incur an excise tax when a Cabinet decision on excise goods is implemented from January 1 next year.

In a statement issued to the press, the FTA said the decision is part of the government’s continuous efforts to promote healthy lifestyles in the UAE community and curb the spread of diseases stemming from consumption of harmful goods.

FTA director-general Khalid Ali Al Bustani said the authority has launched a widespread awareness campaign through workshops and seminars targeting all stakeholders involved to introduce them to the new procedures.

What is a sweetened drink?

The Cabinet decision identifies sweetened drinks as any product to which a source of sugar or sweetener is added.

These could be produced as one of the following:

• - Ready-to-drink beverage, or
• - Concentrates
• - Gels
• - Powders
• - Extracts, or any other form that can be converted into a sweetened drink.

In that regard, sugar includes any type of sugar determined under Standard 148 of the GCC Standardization Organisation and any subsequent relevant standards.

Meanwhile, sweeteners include any type of sweeteners determined under Standard 995 of the GCC Standardization Organisation and any subsequent relevant standards.

What about exempt beverages?

The decision also outlines beverages that are not included in the new tax, namely:

- Ready-to-drink beverages containing at least 75 per cent milk

- Ready-to-drink beverages containing at least 75 per cent milk substitutes

- Baby formula or baby food

- Beverages consumed for special dietary needs, as determined under Standard 654 of the GCC Standardization Organisation under the heading “General Requirements for Pre-packaged Foods for Special Dietary Use” and any subsequent and relevant standards; and finally,

- Beverages consumed for medical use, as determined under Standard 1366 of the GCC Standardization Organisation under the heading “General Requirements for Handling of Foods for Special Medical Purposes’, and any subsequent and relevant standards.

E-liquids

On a side note, the authority clarified that as per the decision e-liquids include all liquids used in electronic smoking devices and tools and the like, whether or not containing nicotine or tobacco.

E-cigarettes refer to all electronic smoking devices and tools and the like, whether or not they contain nicotine or tobacco.

Registration process begins

FTA has revealed that it has updated the electronic registration system for excise goods to allow for adding the new products included in the amended Cabinet Decision.

FTA director-general Khalid Ali Al Bustani called on producers, importers, and stockpilers of sweetened drinks with added sugar to abide by the decision and start registering for excise tax purposes. Excise tax is an indirect tax that is imposed on certain products deemed harmful in an effort to curb their consumption.

An entirely new registration procedure was put in place on August 18, and the FTA called on all concerned businesses, including producers, importers, and stockpilers of Excise Goods, to take the initiative and register said goods in the new system.

It also called on all businesses dealing with sweetened drinks to go ahead and register for excise tax purposes and register their products within FTA’s new system as part of the first phase of registration, where the authority will announce the next phase of the registration that will include electronic smoking devices, and liquids used in the devices.

Necessary procedures

As per the decision, FTA specifies the necessary procedures to classify excise goods, and may request persons to provide documents or laboratory evidence to determine the content of a certain product and properly classify it.

Al Bustani said FTA has set a comprehensive plan to implement the new decision which includes, in addition to the updates made to registration systems, several manuals and guides clarifying the standards and procedures for implementing excise tax on sweetened drinks, electronic smoking devices and liquids.

The guides break down the steps needed to carry out the registration both for taxable persons and excise goods as well as the timeline and deadlines.

“Implementation of 50 per cent excise tax on carbonated drinks and 100 per cent on energy drinks and tobacco products was a great success by all measures and indicators,” Al Bustani added.

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Ministry of Finance declare Cabinet amendment on excise tax. Formula to calculate excise price of tobacco products also announced

Abu Dhabi: The Ministry of Finance announced details of Cabinet Resolution No.38 of 2017 on Wednesday, which sees sweetened, sugary drinks and electronic smoking devices and their liquids added to the list of products subject to excise tax.

Sweetened, sugary drinks will be subject to 50 per cent tax from January 1, while electronic smoking devices and their liquids will be 100 per cent taxed in the latest round of additions announced in a UAE Cabinet decision on Tuesday.

The decision was made for the good of public health and is in line with the UAE’s commitment to implement a GCC Unified Agreement for Excise Tax which will achieve economic integration across the region.

Obaid Humaid Al Tayer, Minister of State for Financial Affairs, said: “These amendments comes in line with the government’s orientation that excise tax policy targets consumption patterns harmful to public health, in order to complement efforts to raise awareness about the damaging effects of consumables harmful to health.

“It contributes to strengthening the health system’s work in controlling prevalent diseases and reducing the cost of treating them, promoting community health, motivating individuals to spend effectively, reducing the negative impact of harmful substances on the environment, and encouraging producers to develop better alternatives.”

Meanwhile, the Cabinet has also set a minimum standard price on tobacco products, of not less than 0.4 dirhams per roll of cigarettes, and 0.1 dirhams per gram of hookah tobacco, ready-to-use tobacco and similar products. The Minister of Finance will issue a decision on the implementation date, which is set to be before 1 January 2020.

Al Tayer added: “The Ministry of Finance conducted in-depth studies on the direct and indirect negative effects of health-harmful consumption patterns, including tobacco products, electronic tobacco and sugar-sweetened beverages. The cabinet decision aims to correct these harmful patterns and provide the appropriate legislation to regulate excise tax in order to achieve the government goals in ensuring the health and well-being of all members of the society and to achieve the third objective of the Sustainable Development Goals (SGDs) of ensuring healthy lives and promoting wellbeing for all at all ages.”

The Ministry of Finance has examined the economic and social impact of excise tax, since it was first launched in the UAE in 2017, and has seen a positive impact in reducing the consumption of the harmful goods included in the Cabinet decision. There has been little negative effect in terms of the loss to the gross domestic product or employment rates as a result of the taxation, thus keeping the state competitive.

Al Tayer, said: “The Ministry of Finance continues to work and coordinate with all relevant authorities to prepare periodic studies on excise tax and ensure its optimal application in the country. The ministry is also committed to strengthening the tax laws issued in the country, and to fulfill all its obligations towards all commercial treaties and agreements concluded, while continuing to work to develop its legal and legislative system to enhance the country’s position in various indicators of global competitiveness.”

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UAE bourses see profit-taking after holidays Traded value put at Dh164m, up from a 30-day average of Dh130m

Dubai: UAE bourses witnessed slight profit-taking on Wednesday as traders returned after a long holiday.

The Dubai Financial Market general index closed 0.22 per cent lower at 2,831.69, falling from a high of 2,857.85.

“Short term traders may look to trade the higher range,” Shiv Prakash, senior analyst with First Abu Dhabi Bank Securities said in a note.

Traded value came in at Dh164 million, up from a 30-day average of Dh130 million. Emaar Properties closed 0.57 per cent lower at Dh5.27.

DP World closed 3.16 per cent lower at Dh13.80. Dubai Islamic Bank closed 0.58 per cent lower at Dh5.17. Air Arabia closed 0.83 per cent higher at Dh1.21.

The Abu Dhabi Securities Exchange general index closed 0.85 per cent lower at 5,053.77. Abu Dhabi Commercial Bank closed 0.24 per cent lower at Dh8.45.

First Abu Dhabi Bank closed 0.93 per cent lower at Dh14.96. Etisalat Group ended 1.11 per cent lower at Dh16.10.

Saudi Tadawul index was 0.79 per cent higher at 8,550.23. Al Rajhi Bank was 0.30 per cent higher at 67.20 Saudi riyals. National Commercial Bank was 0.59 per cent higher at 51.50 riyals. Elsewhere in the Gulf, the Muscat MSM 30 index closed 0.60 per cent higher at 3,861.51.

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UAE small businesses must redo their accounting ways Far too many of them still use time consuming manual ways to do their books

Dubai: Small businesses are considered the economic backbone for most economies. They are drivers of growth as they help generate jobs for millions, contribute to the GDP gains, and have a powerful impact on the local economy.

These are just some of the many contributions to socioeconomic development in both developed and developing nations. However, like any other business, small enterprises also face a number of daily challenges as part of the grind of running their operations.

Each day, they make decisions with either minor or major impacts on their overall operations and performance. Of all the concerns that the management team needs to tackle, financial issues are probably the most complex and the most crucial to their expansion and continuing growth.

Given the importance of this aspect, a number of small businesses still handle their finances without the necessary strategic planning, control, and management. There is a need to put in place a practical and cost-efficient financial forecasting, reporting, and monitoring mechanism, as it is essential to accurately anticipate and better manage their financial issues down the road.

A recent study that surveyed around 200 small businesses, cite monitoring performance and financial management as the top two challenges facing them. The respondents from manufacturing, trade, and the services industries either used traditional forms or utilised manual services to record their financial activities, including accounting management, value-added tax (VAT) compliance, invoicing, billing, and inventory.

The research also indicated that businesses with less than Dh2 million annual turnover were using a manual mode of accounting, leading to financial challenges.

To address the monitoring performance and financial management issues, it is important that businesses adopt automated solutions to better organise, streamline, and automate their financial operations. Automated accounting, for example, will ease out the process of account maintenance.

Additionally, implementing such a system will release them from time-consuming processes brought about by the current set-up; eliminate tedious paperwork and inaccurate information; reduce human errors; prevent cases of misplaced invoice and other documents; and result in lower costs and higher savings.

Moreover, under the relatively  VAT regime in the UAE, migrating to a VAT-compliant business management software is vital to ensure their correct compliance. These automated systems can help in invoice generation and tracking historical data, for example.

In a world where everything is going digital and automated, it is important for businesses regardless of their size to keep up with the changes. Under this perspective, investing in new technologies is a significant endeavour necessary for organisations to remain competitive and maintain their market presence and lead.

Many cost-efficient business management software solutions are available in the UAE market today and it is just a matter of choosing the right system that works best for small enterprises in order to maximise the full benefits that it offers.

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UAE bank warning: Do not fall for this VAT refund scam Mashreq Bank issues alert over phishing scam email targeting clients

DUBAI: If you have got a purported email from Mashreq Bank asking you to seek value added tax (VAT) refunds by submitting your bank details, banish the thought. It’s a phishing scam!

Of late, several Mashreq Bank customers have got a dodgy email saying they are eligible to receive over Dh10,000 in VAT refunds based on ‘last audit calculations of their fiscal activity”.

Customers are then instructed to enter their credit card details, compete with CVV numbers and expiry dates in an accompanying form and send it back by email.

Gurcharan Chhabra, head of fraud prevention and intelligence at Mashreq Bank has urged customers to stay clear from the phishing email.

“Mashreq Bank strongly advises its customers to check for the authenticity of any communication that appears to come from the bank. We caution our customers to not respond to any communication that requests for your banking information or offers a VAT/TAX refund/Tax credit as you can be a potential victim of an electronic scam,” Chhabra said in an email to Gulf News.

“We urge our customers to be highly alert and check before clicking on any link or opening any attachment and never share vital details like password, user ID or PIN. As a bank we will never ask you to share such confidential details via links,” he said, asking customers to contact the bank’s call centre should they receive a suspicious email/SMS/WhatsApp message.

Last year another local bank, Emirates NBD issued a similar warning about a phishing email targeting its clients

“You may have received a recent email with the subject line ‘VAT Refund Notification’, claiming to be from Emirates NBD. Please be aware that this is a phishing email. We urge you to be highly vigilant and always check the source before clicking on any links or attachments in e-mails,” the bank posted on its website.

Phishing attack is a cyber crime where criminals send an email that appears to be from a legitimate company and ask you to provide sensitive information.

A staggering 1.1 million phishing attacks were recorded in the UAE during the first quarter of 2019, according to the head of global research and analysis for Kaspersky in the Middle East, Turkey and Africa.

Meanwhile the Central Bank of the UAE (CBUAE) has issued a warning about WhatsApp messages claiming to be from CBUAE or banks operating in the UAE. In a statement issued last week, the Central Bank said it never uses social media or messaging services like WhatsApp to contact individuals or businesses. Cautioning residents against responding to these messages, the Central Bank said opening the hyperlinks in the messages could expose them to malware.

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Banned in UAE: Sale and possession of cigarettes without Digital Tax Stamps from August 1 FTA appealed to consumers to check for Digital Tax Stamps on the packaging of cigarettes

Two types of Digital Tax Stamps were approved by the FTA, Red and Green, depending on the markets that the products are sold in.

Abu Dhabi: From, the beginning of August, the sale and possession of all types of cigarettes not bearing the Digital Tax Stamps will be prohibited across UAE markets - the Federal Tax Authority (FTA) announced.

Prohibiting the sale in local markets of cigarettes packets not bearing the Digital Tax Stamps is part of the timeline set for the ‘Marking Tobacco and Tobacco Products Scheme’, which went into effect at the beginning of 2019.

What does the tax stamp mean?

The scheme seeks to electronically track cigarettes packs from the production facility and until they reach the end-consumer, in order to protect consumers from low-quality products, combat tax evasion, and ensure that the Excise Tax due on these products has been settled.

This is as per Cabinet Decision No. (42) of 2018 on Marking Tobacco and Tobacco Products and FTA Decision No. (3) of 2018 on Implementing the Marking Tobacco and Tobacco Products Scheme.

“The Authority has sought to implement an integrated and widespread awareness campaign starting from the second quarter of 2018 – several months before the ‘Marking Tobacco and Tobacco Products Scheme’ went into effect – to allow sufficient time for local markets to prepare for the Scheme and avoid any adverse effects to their commercial activities,” FTA Director General Khalid Ali Al Bustani explained.

“Furthermore, the Authority collaborated with the system operator to carry out an extensive awareness campaign through its official website, social media accounts, newspapers, television, and radio. Workshops were organised, bringing together individuals and organisations involved in the manufacture and trade of tobacco and tobacco products, introducing them to the Scheme, and answering their queries.”

Red stamp and Green stamp

Two types of Digital Tax Stamps were approved by the FTA, the first of which is Red and meant to be placed on the packaging of tobacco products (including cigarettes) sold at all local markets, as well as at duty-free in arrival lounges.

The second type, meanwhile, is Green and earmarked for tobacco products sold at duty-free in departure lounges.

Appeal to customers

The FTA also appealed to consumers to check for Digital Tax Stamps on the packaging of cigarettes they buy and inform competent authorities of any violations, noting that the scheme serves to tighten controls on the market, ensure compliance with international best practices, verify that tax obligations have been met, and guarantee the quality and safety of tobacco products in the UAE.

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