VAT to make hospitality sector highly cost-sensitive: Study

Manama : The introduction of Value Added Tax (VAT) may alter consumer behaviour in the hospitality industry making consumers more cost-conscious, according to a study conducted by HVS, a global hospitality consultancy.

This may lead to right pricing of hotel rooms to attract consumers.

The tax, which will be imposed in the GCC would increase the living expense in the region, and thereby discouraging in booking hotel rooms, the report stated. Millennial travellers are the most likely to be more price sensitive, the report said. 

 “As many GCC markets attempt to diversify their segmentation of demand, with a greater focus on price-sensitive, millennial travellers, this added-tax has the potential to alter consumer behaviour by discouraging guests from booking due to higher fee. As a result, hotel operators may need to modify their average rate and fee-based strategy,” the report said.

The high profile events scheduled to be held in the GCC will help bring an influx of international tourists, the report added. 

“Events such as Dubai Expo 2020, and Qatar’s hosting of the 2022 Fifa World Cup, and increased visa issuances permitting foreign pilgrims to enter Makkah and Madinah will largely aid in these particular markets’ ability to increase accommodated demand in the mid to long term,” the report said.

The report added that the hospitality industry in Middle East continues to grow. 

In the year 2016, the Middle East and North Africa region was witness to adding nearly 13,000 hotel rooms, an approximate eight per cent increase in supply over the year 2015, the report of the consultancy said.

“This new supply was represented by 31 different brands, of which 46 per cent of the rooms were five-star, 24 per cent of the room were four-star, and 31 per cent of rooms were three-star. The majority of this new supply was derived from the UAE (approximately 4,600 rooms) and Saudi Arabia (approximately 3,700 rooms),” the report said.