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Complex VAT refund hurts UK tourism

By Wang Mingjie | China Daily Europe | Updated: 2016-03-13 13:09

Analysts and Chinese travelers complain of confusing fees, low exchange rates and long waiting times to get their money

Tourism experts and overseas visitors, including from China, have criticized the UK's tax-refund system for being too complex and time-consuming.

The system, in place since 1995, allows tourists from outside the European Union to claim back valued-added tax on any purchases made in the country upon departure. Yet critics argue that it threatens to hamper the United Kingdom's bid to become a major shopping destination.

Complex VAT refund hurts UK tourism
Chinese tourists stand in a queue to get VAT refund at Heathrow Airport Terminal 3. Wang Mingjie / China Daily

"The poor VAT refund experience, as well as hidden fees, certainly decreases Chinese travelers' satisfaction about their UK travel and lowers the UK image as a destination," says Yang Jingjing, a lecturer on tourism development at the University of Surrey.

According to the rules, non-EU residents who buy goods in the UK can apply for a VAT refund when they leave the country. In theory, this involves filling out a form and presenting it with receipts to a refund booth, like those at the airport. In practice, however, the procedure can be time-consuming, proving an extra burden for passengers who already need to pass through lengthy security checks.

The complexities of the procedure, the number of companies that operate refund programs, and long lines at airport counters mean many tourists are either losing out or being charged what some say are exorbitant fees.

Chen Lizhi, a recent Chinese graduate of Loughborough University in the East Midlands, says she spent 4,000 pounds ($5,680; 5,170 euros) on luxury bags, clothes and skin care products during a London shopping trip, paying about 700 pounds in VAT.

"I ended up receiving a refund of just 368 pounds," she says. "I didn't expect there'd be an additional handling fee at the airport counter, as a big chunk had already been taken out at the time of the purchase. Also, the currency exchange rate at the refund desk is low compared with high-street rates.

"I may hesitate to shop again in London as the cost of getting a refund is too high."

To qualify for a VAT refund, tourists have to spend a minimum amount, which varies from retailer to retailer. At the point of sale, foreign customers can ask for a refund form and the retailer and/or the VAT refund operator will charge a service fee. Rates vary depending on the sum and the operator.

The main refund operators are Global Blue, Premier Tax Free, Tax Free Worldwide and Innova Tax Free, while companies such as Travelex, Moneycorp and International Currency Exchange act as agents to process the refunds and handle currency exchanges.

"I'm very confused by the different rates charged by the retailer and the VAT refund operators," says Qian Sujia, a frequent visitor to the UK from Hangzhou. "As a tourist, I can't do much, but I'd appreciate it if someone could provide a clear table for what will be charged."

Global Blue says the company does not share "refund tables" in any of its markets due to commercial sensitivity, adding that its services are optional and can be declined if travelers prefer not to pay its service fee.

"They can liaise directly with merchants and local authorities; however, this process is a very lengthy and complex one," the company said in a statement.

Selfridges, a popular store among Chinese visitors to London, would not comment on fees for VAT refunds, saying only that its tax-free shopping service is operated by Global Blue.

Harrods, another famous British department store, also declined to comment on fees, but says it is continuing to work with Global Blue to improve the tax-free process by providing a selection of options for receiving tax refunds, including cash in store for sales under 10,000 pounds and instant refunds via Harrods Rewards Cards or Alipay, the third-party payment system owned by Chinese technology company Alibaba.

Customers are also charged a fee at the airport counter for cash refunds. And although there is no fee for credit or debit cards, overseas visitors have complained they find it hard to chase refunds that fail to make it to their account in time once they return to their native country.

"I had the experience of not receiving money from a card refund, and I couldn't do much about it when I returned to China," Qian says. "Plus, non-UK credit and debit cards will also impose their own exchange rates."

Lei Yamin, a Chinese tourist from Zhejiang province, adds, "I was appalled that those who want a refund in sterling are asked to take out every single item they have purchased to be checked, while those who want a foreign currency don't. That is a clear indication that a sterling refund is discouraged, as the currency conversion rate at the refund booth is much lower than on the high street."

In response, Travelex said in a statement that it is reviewing its practices at airports to shorten wait times, and added that it is legally required to conduct random checks on people's goods at VAT refund counters.

However, Hugo Jenney, a partner at British law firm Stephenson Harwood, says the lack of clarity in the system is ripe for criticism, as it allows various parties to potentially exploit the naivety and lack of bargaining power of the average foreign tourist to the UK.

"It's fair to have certain charges, but whether they are clearly outlined to the buyers so they know what they are doing and what their choices are, or whether they are exploiting a muddy area in which they know the tourists will not complain is another matter," he says.

He adds that he was shocked by one report that a Chinese visitor had lost about 50 percent of her VAT refund, arguing that various participants are "profiteering" from the complexities of the system.

Such inefficiency would not be tolerated in many other markets, he says, and the reason it is in the UK is because there is no transparency, and perhaps also a lack of competition or interest in competitiveness, he says. Jenney says the system would benefit from some scrutiny from a body that can impose guidelines.

Yang at Surrey University agrees, adding that a hotline or online service should be set up to make sure Chinese tourists can track refunds once they depart the UK. Handling complaints may also require cooperation from Her Majesty's Revenue and Customs and tourism organizations, she says.

The office of David Gauke, financial secretary to the British Treasury, declined to comment when contacted by China Daily. However, the HMRC responded with a statement saying: "We're working on creating a digital VAT refund scheme for overseas shoppers. This will provide shoppers and retailers with a quicker and easier way to take advantage of the refund scheme." It did not reveal a time frame for its implementation, however.

"Shopping is a huge part of many tourists' visits to Britain," says Patricia Yates, director of VisitBritain, the UK's official tourism board. "A simple and slick VAT refund scheme would make us a more attractive destination for high-spending visitors, including the Chinese, who are some of our highest spenders."

Latest figures from VisitBritain show Chinese made 214,000 visits between January and September last year, up 37 percent on the same period in 2014. Each spent on average 2,688 pounds.

Tourism has become big business in the UK, with the number of people employed in the industry growing by almost 12 percent in the five years up to 2014, from 2.66 million to 2.97 million, according to VisitBritain.

David Higgins, general manager of China Links Travel, warns that if inbound clients from China are not able to see financial benefits from the VAT refund system "and are met with additional paperwork, then it could affect their overall decision of where to tour, especially if the process is much smoother in other European countries such as France and Italy".

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