The VAT refund scheme that pays you back $250K daily to buy more
Almost a month after the VAT refund scheme went live, the UAE’s Federal Tax Authority (FTA) has now revealed some figures to show that the scheme is functional and effective.
As of Tuesday, December 11, it had processed about $6 million in refunds, starting on November 18. Yet, what does this data tell us?
The hard facts
This week, on Tuesday, the Federal Tax Authority (FTA) revealed its first-ever data collected from the tax refund scheme. The numbers are quite telling.
The refund scheme is seeing an average of 3,800 transactions per day, with the average total amount of refunds processed every day adding up to $251,868 (AED 925,187). Multiplied by the days the scheme has been active, this totals to approximately $6 million, according to our estimates. Across a month period, this would equal approx. $7.55 million, across an estimated 114,000 processed refunds. As for an entire year, that’s approx. $90.6 million.
The number of retail stores linked to the scheme’s electronic system has increased to 6,903 from 4,500, when it first launched last month.
So what does this data tell us?
An estimated $7.55 million per month in tax refunds is nothing to scoff at. This number is bound to increase as the system completes its full integration in the country on December 16, and tourists become more accustomed to the process.
“The results of the operating system for tax refunds for tourists scheme underline how the scheme is functioning with high efficiency. This, in turn, makes for seamless tourism operations at the UAE’s ports of entry,” said FTA Chairman Sheikh Hamdan bin Rashid Al Maktoum.
He continued by saying that the average daily 3,800 transactions are “a significant number considering the scheme is still in its first phase.”
Indeed, this number is indicative of strong tourist spending, as customer spending ramps up as we approach the holiday season. Come late December or early January, the FTA will see this figure blow up exponentially.
The scheme is UAE’s way of giving back to tourists to encourage them to make a return visit, and it seems that it will be a great success.
“The FTA is keen to contribute to increasing tourism attractiveness, encouraging domestic trade and establishing the country as a central trading hub in the region,” said Khalid Ali Al Bustani, general director of the FTA.
According to Mastercard’s Global Destination Cities Index 2018, Dubai recorded the highest international overnight visitor spend in 2017, at $29.7 billion (AED 109bn), with a $537 daily spend. The UAE, and particularly Dubai, is seen as the world’s premier shopping destination, ranking as the fourth most-visited city in the world for the fourth time.
UAE VAT turns 1 year old
By the end of December, 5% VAT will have been in full effect in the UAE for an entire year.
However, it was only on November 18 that a tax refund scheme had gone live, allowing eligible tourists to claim a VAT refund on their purchases at Abu Dhabi, Dubai and Sharjah International Airports. This delay was natural as VAT was still an entirely new concept to the country.
According to the FTA, the “scheme allows a refund on purchases of up to $2,722 (AED 10,000) in cash for every overseas tourist within every 24 hours, which is high compared to the values allowed to be refunded in cash in many countries of the world.”
The second phase of the scheme, slated for December 16, will allow eligible tourists to claim tax refunds at all other UAE airports and land and seaports that are taking part.
How do other countries handle tax refunds?
At this current moment in time, Saudi, which implemented VAT at the same time the UAE did, has not detailed any tourist VAT refund scheme as of yet, though it did announce it was working on such a scheme back in December 2017.
As for the other GCC members, Bahrain, Oman, Qatar, and Kuwait have not implemented VAT as of yet.
Other MENA countries, such as Lebanon, have implemented VAT and allow for tax refunds. Minimum purchase value in Lebanon is approximately $100 (LBP 150,000).
The UK and other western countries have similar schemes. In the UK, for example, you are only eligible for a refund on goods purchased within the last 3 months.
In the US, there is no VAT, but a similar levy known as sales tax. According to the US Customs and Border Protection, “the US government does not refund sales tax to foreign visitors. Sales tax charged in the U.S. is paid to individual states, not the Federal government – the same way that VAT is paid in many countries.”