If you intend to take your family to an amusement park or any other entertainment facility, get ready to shell out more from next year.
Set to be introduced in the UAE from January 2018, the five per cent value-added tax on entertainment will result in an increase in the cost of water and theme park tickets in the UAE if the companies decide to pass on the tax burden to consumers, say tax experts.
"Entertainment constitutes a service. Seeing that there is no exemption or zero rate applying, all types of entertainment will be subject to five per cent VAT," says Thomas Vanhee, founding partner, Aurifer Middle East Tax.
Girish Chand, director at MCA Management Consultants, is of the view that there is no exempt category in the entertainment sector, hence all activities of the entertainment industry would come under VAT.
"It is expected that the ticket prices would be VAT inclusive considering that it is generally an advertised price. The service providers would have to review their profitability and decide whether they will absorb the VAT cost or pass on to the customers," Chand noted.
Major theme and water parks in the UAE are IMG Worlds of Adventure, MotionGate, Bollywood Parks, Legoland, Wild Wadi Waterpark, Aquaventure Park, Ice Land Water Park, Dreamland Aqua Park and Ferrari World Abu Dhabi.
IMG Worlds of Adventure and DXB Entertainment, which owns MotionGate, Bollywood Parks, Legoland, refused to comment on queries sent by Khaleej Times.
UAE residents, however, believe that there will be an impact initially but people will slowly adjust this increase in their entertainment budgets - especially for smaller families.
According to Najam ul Saqib, an auto spare parts businessman with operations in Ajman and Dubai, the tax may prompt people initially to cut their entertainment budgets but it will be for a short period only.
"The residents will adjust their budget. Those who're going to theatres three times a month will now go twice, but will not substantially cut their entertainment budgets. Initially, when Salik was introduced in Dubai, people took different routes but later they realised that it costs them more in terms of fuel and time lost on roads; but now majority uses Salik. Similarly, VAT will also be part of the residents' life and their spending will match their previous levels," he added.
Naushad Ahmed Siddiqui, a senior manager with one of the largest bakeries in the UAE, is of the view that the bigger families might think twice before going to entertainment facilities from next year and tighten their purse. But impact on small families will be marginal.
"Salaries are not expected to increase and this tax is purely consumer-focused, hence, we have to plan our budgets from next year and reduce expenses - especially related to entertainment - as we occasionally take family for outings like hotels stays and movies," says Siddiqui, the father of three children.
According to Vanhee, entertainment expenses in Saudi Arabia are not recoverable for VAT purposes. "They [entertainment expenses] constitute a cost to the business. For example, when a business organises an annual outing for its employees to celebrate the financial results, it will incur some costs for which the VAT will not be deductible [e.g. renting of the venue etc]. It is generally expected that the UAE will use the same approach," he told Khaleej Times.
In Europe, entertainment is usually subject to the standard rate, which varies between 17 and 27 per cent. In some cases though, when entertainment is offered by non-profit associations (e.g. theatre), it is exempt. In other cases, sometimes it is subject to a lower rate (e.g. cinemas).
Global consultancy PwC had said that the UAE entertainment industry would top 45 million visitors by 2021 with international tourists accounting for 30 million, while residents and friends and relatives of residents total a further 15 million. PwC believes theme parks will attract 18 million visits.
DXB Entertainment expects 7.5 million visits annually, or 20,500 daily visits. During the first half of 2017, over one million visits were registered for Dubai Parks and Resorts. It recorded Dh86.5 million of total revenue through the theme parks, at an implied Dh209 revenue per cap. At the opening of the Dubai Parks and Resorts, DXB Entertainment had forecasted 6.7 million ticketed visits in 2017, the first full-year of operations.
IMG Worlds of Adventure was expecting 4.5 million people to visit the park in the first year of operations.
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