On December 31, 2020, the UK government took the decision to withdraw the VAT retail export scheme, abolishing tax-free shopping for non-EU tourists, a move which the tourism, hospitality and retail sectors say has proven counterproductive.
The Treasury’s call made the UK the only European country not to offer VAT refunds to non-EU tourists and, while the government may have sought to recoup funds through further tax revenue following the pandemic, the UK tourism, hospitality and retail sectors believe that ministers have shot themselves and their industries in the foot by putting tourists off coming to the UK altogether.
Luxury trade association Walpole, which represents brands such as Burberry, Harrods, Claridge’s and Wedgwood, has commissioned a report which suggests that the UK has lost out on vital revenue in the post-Covid recovery and argues that bringing the tax-free shopping scheme back could attract a further 600,000 tourists to Great Britain, generating £1.2 billion more in sales.
Within Walpole’s report, entitled ‘What It’s Worth: Enabling the Return of the £30 billion High-end Tourism Sector’, there are comparisons to spending by visitors from the US pre-pandemic and post-pandemic in Great Britain and the EU.
Comparing the fourth quarter of 2019 with the same period in 2021, US shopping in the EU had returned to 91 per cent while the UK stood at just 49 per cent.
The figures relating to visitors from the Gulf states in the Middle East, such as the United Arab Emirates, Saudi Arabia and Qatar, were even more concerning. Over the same quarters, their retail expenditure had increased by 153 per cent in the EU, but in Britain it was only at 60 per cent. With visitors from Gulf Co-Operation Council countries previously having made up 26 per cent of the UK’s tax-free spend according to the report, these statistics are of particular concern to industry.
One tourism industry leader, Chirag Golwala of TripCenter.net – a firm which handles chauffeured car, minibus and chartered bus hire – has called on Westminster in the wake of the report to heed the warnings of industry and reconsider the status of the VAT retail export scheme.
Golwala told The Leaders Council: “Getting rid of the tax-free scheme did not make much sense to us in the UK tourism industry. I believe the reasons behind it were the perceived costs of expanding it to cover EU tourists after Brexit as well as those not in the EU, and the fact that comparisons were being made to the US who were also looking at getting rid of their tax-free shopping scheme.
“Our competition is directly with close European neighbours like France and Italy when it comes to shopping, so the US situation isn’t comparable to ours. One of the major attractions for any international tourists when you look at the Middle East and Far East Asian market of tourists was the tax-free shopping. And in 2019, about 20,000 such travellers coming to the UK collectively spent about half a billion pounds in the UK.
“Obviously during Covid, all of this stopped, but during the pandemic the government abolished tax-free shopping. Now, we’re seeing the moments of international travel picking back up again and the UK will be losing out significantly because these tourists are more inclined to travel to other countries where tax-free shopping is in place.”
Golwala fears that if the UK government does not revisit the scheme, then the industry will significantly lose out on some much-needed revenue as it seeks to recover in earnest from the effects of the pandemic.
“If this is not revisited by the government, the UK tourism sector will lose out on a lot of momentum. Tax-free shopping is a big reason behind why these tourists travel long distances to come to the UK and Europe. However, it is clear to me that there is a lack of vision, strategy and mindset by the government to help rebound UK Inbound tourism and rather, they let it continue to suffer by taking it for granted.”
Suggesting how the government could revisit its strategy to entice tourists back to the UK, Golwala called on ministers to look at the experience of visiting Great Britain from a foreign traveller’s perspective.
As well as the status of tax-free shopping, the tourism boss also singled out the new post-Brexit visa regime and lengthy queues at passport control as being further damaging to the tourism industry’s prospects.
He said: “Unless the government thinks more from the traveller’s perspective, there is only more difficulty to come with losses from the slump in tourism from the Middle East and North America already visible in the post-Brexit and post-Covid UK.
“The government must realise that those who can afford to travel here can very easily afford to go elsewhere, where they will not need to suffer the agony of two-to-three months waiting time to get a visa and pay expensive fees before landing here to find long immigration queues. On top of that, they are having to pay more out when they go and buy in the UK, when they can avoid all this hardship anywhere else.
“It is too late to salvage 2022, but the government can review this and relaunch the scheme to bring benefit to our sector in time for the year 2023 to be saved.”
Listen to Chirag Golwala expand upon these issues on The Leaders Council Podcast below.
Photo by Kristina Gadeikyte on Unsplash
