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FEATURES | News

Dubai suspends its 30% alcohol tax, hoping to become the “happiest place on Earth”

Jane Anson, January 2023

by Valeria Tenison

In the earliest moments 2023, one of the two Dubai alcohol distributors, Maritime & Mercantile International (MMI), announced a 30% alcohol tax suspension on their social media channels. On January 2nd, replying to a user question, the Dubai Municipality confirmed this information on its official Twitter account: “Dubai Municipality has temporarily stopped collecting the 30% fee from alcoholic beverage companies for a period of one year from the beginning of 01/01/2023 to the end of 12/31/2023. The companies authorised to sell in the Emirate of Dubai have been notified of this decision.”

In the official statement to the Caterer Middle East, MMI CEO Tyrone Reid said, “A lot of work has been going on in the background between the authorities and key industry members to make this change. From our side, we’re encouraging our customers in the on-trade area to pass this on to consumers. We understand that will take re-budgeting and review and we know many people have started that”. MMI, a part of the Emirates group, owns 21 shops across Dubai, including popular locations in Dubai Harbour and Town Square.

MMI’s only competitor, African + Eastern, also decreased prices across its 20 stores. “Huge credit to Dubai Government for taking such a bold decision,” commented Jason Dixon, chief executive of African + Eastern, to the Financial Times, “This announcement will be especially transformative for tourists and residents.” The retailer confirmed that prices would remain subject to a 5% VAT.

Both companies emphasised that customers no longer need to go to the other emirates to stock on alcohol. Before, it was common for Dubai residents to drive to the neighbouring emirate of Umm al-Quwain for tax-free shopping.

Along with the tax drop, the government also suspended the annual license fee of AED 270 (70€) previously needed to purchase alcohol for home consumption, which now places Dubai on equal terms with the other five emirates where the license is not required. Conservative Sharjah is the only emirate where alcohol sales are prohibited.

It may take time to see the impact for Bordeaux wine, where the United Arab Emirates sits close to the 20th largest importer – going from an almost zero market 30 years ago to one worth €10 million in 2002, €100 million in 2014, up to around €130 million by 2019 – though down to €76 million in 2020, an almost 50% drop due to the market relying so heavily on hotels, airlines and travel retail outlets, all of which were severely impacted by covid.

Delayed impact
Dubai is famous for its steep three- to five-fold margins on alcohol, and on-trade venues are yet slow to lower their rates. Many still need first to sell stocks purchased last year. However, some have already dropped the prices. Mr. Toad’s Pub & Kitchen chain, which belongs to the same group as MMI, reduced its costs with house wine now available at AED 25 (6€) per glass and AED 99 (25€) per bottle. According to Time Out Dubai, a single-serving of any alcohol is expected to become cheaper by AED 4 (1€) on average. While suspending the alcohol tax, the emirate will introduce a 9% corporate income tax later this year that will partially compensate for the decreased revenues of the government, so we will not see an actual 30% price drop in on-trade.

Christiaan Olivier, Sommelier & Founder of The Flight Club DXB, says, “We will see only the impact on pricing after the first or second month of 2023. A couple of factors are delaying the rollout of price changes: first, at the end of Nov 2022, there was a price increase from the local suppliers of between 10% to 19%, as there wasn’t any price increase since 2019 in the city. Secondly, most venues bulk purchased in November and December to save on bulk deals and pre-price increases in December 2022; hence it will take a while to clear stocks to buy new stock at the new price”.

“We will hopefully see some price drops of the house brands in the mid to upper-tier restaurants to offer greater values. We also expect that higher-end restaurants will trade up – remove the entry-level offering and move the better quality offerings to that level. We still need some market champions that will change their pricing, as the change came very quickly from the government. Venues still need to work with their finance department and owners to work on the new strategy going forward”.

The change is likely an attempt to attract more tourists and foreign residents to the city-state, whose goal is to become the “happiest place on Earth”. In recent years, neighbouring countries like Kuwait, Qatar, and especially Saudi Arabia have invested a lot to develop tourism and attract international visitors by hosting important cultural and sports events. Saudi Arabia is still a dry country, but Crown Prince Mohammed bin Salman has recently been easing religious restrictions to convert the kingdom into a global destination and a commercial capital of the region.

Dubai has recently changed its Islamic weekend of Friday-Saturday to the Western Saturday-Sunday and started a digital nomad visa programme. Already a city with up to 80% foreign population, it strives to boost tourism further and attract global capital. Offering cheaper alcohol to its non-Muslim population is an essential step toward making the city-state more affordable and, thus, more attractive.

by Valeria Tenison

 

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