Publisher’s introduction: Asad Jumabhoy is a pioneer of the airport and tourist-related tax-refund business. After spending 15 years helping to build Global Blue into a sector leader he left the industry, only to return a year later to acquire a stake in industry peer Premier Tax Free and Fintrax Payments (now called Planet) in September 2013, becoming Vice-Chairman of the group.
Through his years as an industry veteran, he has pushed to innovate the VAT-refund model, transforming it from a tax administrative service into a consumer-driven rewards platform promoting tourism shopping. In 2015 he started UTU in his home of Singapore. What started as a pure digital rewards platform evolved to fill what Jumabhoy perceived as a need to transform the tourist tax-free shopping industry.
Not surprisingly, he holds firm views on the UK government’s recent abolition of the VAT-refund system for travellers. But instead of echoing other UK businesses in their calls for restoration of the scheme, Jumabhoy says that the old model was fundamentally flawed. He contends that the industry must change so that it gives the practical ownership of tax refunds back to the consumer. That way, Jumabhoy says, the tax break achieves its ostensible purpose, which is incentivising tourists to shop in-country.
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As Asad Jumabhoy listened to the cacophony of criticism over the UK government’s 2020 decision to scrap the VAT-refund system for UK visitors (apart from those travellers who have their goods posted home by the retailer), he believed that the key issue in the debate was being missed.
He argues that the consumer’s needs in the tax refund narrative had been forgotten long before the UK government made its decision, let alone during the furore that ensued.
“What is a VAT refund?” Jumabhoy asks. “It’s really just the paperwork needed to make a tourist the rightful exporter. If a retailer puts 100 handbags in a box and ships it abroad, it’s an export and therefore exempt from any VAT. If a tourist buys these bags while visiting another country and takes them home, that’s also an export.”
“Asking people to wait in line at stores for up to an hour to receive a printed refund form or fill out a paper form, queue at the airport to get it stamped, and then be forced to accept foreign currency with a steep exchange rate is a wasteful anachronism”
In fact, it’s better than an export, he insists. “The benefits of tourists picking up, say, one handbag is that before leaving the country they will likely stay at a hotel, eat in restaurants, attend the theatre and spend money a dozen other ways. Tourists tend to spend a lot of money, and the VAT refund, if done correctly, draws more tourists to a country and also induces them to spend incrementally.”
Jumabhoy avers that the current form of the VAT refund is remarkably ineffective at achieving these benefits – because so much of the refund does not end up in consumers’ wallets or purses. Instead, the VAT refund operator keeps a large share of the refund, and consumers can do little about it, as most major retailers deal generally with a single VAT refund agent, he comments.
Shaping and growing the VAT-refund sector: The Asad Jumabhoy story
The notion of the tourist as a de facto exporter is key to any country’s tourism industry, Jumabhoy says. But for too long, he argues, those same consumers have not received the benefits they should be entitled to. He believes that tourists should decide who should process their refund, not the retailer or any middleman. “The current form of the VAT refund exploits the opaqueness of the industry to the detriment of the tourist and the economy,” he comments.
“When retailers choose their VAT-refund agent, the agents compete for the retailer’s business, very often by promising them a bigger piece of the refund. A consumer-centric approach would result in VAT-refund agents competing for the business of the tourist by giving them the best value for their refund.”
Jumabhoy recalls on his last trip to the UK buying a tie from a top retailer and received just 45% of the VAT he paid. That is not atypical for a European department store, he claims. People who opt for an early refund service receive even less.
“The VAT refund has become less about boosting tourism and more about creating another profit centre,” he contends, adding that the incumbent VAT-refund operators crucially depend on their exclusivity deals for generating profits.
When UTU decided to enter the tax-refund space in late 2017 (see panel below), Jumabhoy knew he wanted to change the market to restore its tourist-centricity. “My team began to think through the mechanics of the business and its component parts so that we understood what retailers and travellers really need. It was all about really understanding margin structures, customer behaviour, consumer pain-points, and solving all of those with a superior shopper experience. And that’s what we set out to do.”
“The system should be changed to incentivise the private sector to eliminate the friction so the VAT refund does what it is intended to do – boost shopping by tourists. In this regard, the UK’s decision to suspend VAT refunds makes perfect sense.”
It was some time after he moved on from Planet that Jumabhoy had what he describes as an “epiphany” on how to solve the shopper-centric conundrum, an issue which had perplexed him throughout his career. To refocus refunding, he notes, “We need to start looking at this as a partnership where the VAT-paying shopper is the individual who owns the VAT refund, and its about maximising refunds while driving sales at stores to make it a win-win ecosystem. It’s not about the store driving an administration process on the VAT-refund operator’s behalf.”
Having been given the cold shoulder from the tax refund sector twice, Jumabhoy set out to do things the way he thought they should be done. UTU’s approach focuses squarely on the tourist.
“I understand the problem intimately and I offer a simple solution: Since the tourist owns the refund, let them decide how they want to receive it. Tourists ought to have the right to have the refund processed by whoever looks after their needs the best and they ought to be told that they have that right. If they knowingly choose the refund agent proposed by the retailer, then that too is their choice.”
“Ending the airport queues alone would make a reform worth doing”
An enduring criticism of the VAT-refund system at UK airports is its unwieldiness, with long queues of frustrated passengers often snaking around the terminal. Jumabhoy tartly observes that for the incumbents this is a feature, not a bug. The current system has evolved for the benefit of the VAT-refund agent, and the tourists’ needs are an afterthought, he adds, claming that is why many travellers are ambivalent about pursuing their VAT refund at all.
“Asking people to wait in line at stores for up to an hour to receive a printed refund form or fill out a paper form, queue at the airport to get it stamped, and then be forced to accept foreign currency with a steep exchange rate is a wasteful anachronism,” he says.
“It is no wonder that many forego their refund altogether. The system should be changed to incentivise the private sector to eliminate the friction so the VAT refund does what it is intended to do – boost shopping by tourists. In this regard, the UK’s decision to suspend VAT refunds makes perfect sense.
“Before its abolishment this January, the VAT-refund scheme in the UK was controlled by an effective duopoly, creating a disincentive for the industry to innovate, since that might open the door to other competitors and push down the charges extracted from the tourists’ VAT-refund amount.”
A matter of choice
In 2020, UTU initiated an inquiry with the Italian Competition and Market Authority regarding the ability of tourists to choose a provider to process their VAT refunds rather than be forced to use the provider the merchant prefers.
In August, the Authority held that the company was correct and that consumers should rightfully make that choice.
“The implications of this ruling are clear,” says Asad Jumabhoy.
“Once tourism resumes, it will become a lot easier for tourists to actively choose a more favourable refund operator to process their VAT refunds, and they will get to keep a lot more of it, as existing processes that charge the tourist as much as half of the refund value will soon be a thing of the past.”
Jumabhoy believes that EU law codifies the right of the tourist to appoint their choice of refund agent. He points out that last year Italy reaffirmed this conclusion (see panel to the right), and he believes that the rest of the EU will follow suit – not just because that is what the law dictates but because it also makes for good policy and good business for the tourist retail trade.
If that were to happen, he opines, innovation would blossom in tax-free shopping. New entrants would create value-driven solutions while incumbents would continue with retailer-led solutions. The difference would be that tourist choice of value versus price would be competitively driven within a free market of improving service standards and efficiency.
As mentioned, Jumabhoy favours empowering the consumer to choose their own refund platform. “UK tourism definitely needs VAT-free shopping for the country to retain its position as a premier shopping and tourist destination. The retailers must accept that the status quo was not working and accept a reform that trades off any share of the refund provided by their VAT-refund agent in exchange for the refund incentive to drive more tourist shopping.”
While moving to a tourist-centred system would represent an enormous mindset shift within the sector, the transition would not be onerous to execute, Jumabhoy reckons. Several start-ups in the industry already have apps to process VAT refunds and the up-front costs for customs offices to change their processes would be offset by the need for fewer employees to be present to stamp receipts, he claims. “Ending the airport queues alone would make a reform worth doing.”
All it needs is a digital solution for export validation, something that several countries have already implemented, he insists.
The UTU model represents an enormous improvement over the status quo, Jumabhoy claims. “One of our models would give consumers a 100 percent refund to the tourist. We believe we can still make money doing so because of the partnerships we have forged and how we have structured our margins. If we give money back to the tourist every industry in the value chain wins because there will be much more tourism.”
Asked if he believes his tourist-centric approach will eventually be introduced, he replies: “It has to be, as it’s the best way for the benefits of tax-free shopping to ever return to the UK.
“While this new way may at first pose a challenge for those retailers who depend on earning their share from the VAT-refund operators, the fact is that only if the UK were to adopt this tourist-centricity would it be on a competitive footing with the EU. Ultimately, I think there’s too much to be lost from not making this reform.”
Your refund, your choice
‘VAT Refunds & Global Rewards. Reborn – Freedom.
‘It’s what you deserve. Value, unshackled.’
The message on UTU’s homepage is emphatically consumer-centric. ‘Shop the world differently,’ it continues. ‘Enjoy maximum value from each transaction. Your refund, your choice.
Founded in 2015 by Asad Jumabhoy, Singapore-based UTU’s mission is to deliver freedom of choice for tourists when they shop and higher sales for retailers in a technologically driven, user-centric world.
FinTech & mobile technology has enabled a global community demanding quality and efficiency in the sharing economy, the company says.
As a result, UTU set out to develop digital tools to increasingly savvy customers, be they shops or shoppers; compliant with data security within a world of increasingly digitised customs regulatory frameworks.