Dubai rang in the new year by suspending a 30 percent tax on alcohol sales as the emirate seeks to consolidate its position as a Gulf tourism and business hotspot.
The initiative, which took effect on Sunday, will last a year and has been described as a trial period by industry executives briefed on the decision.
Dubai, a commercial and tourist hub in the region where expats outnumber nationals by nine to one, has liberalized regulations in recent years to attract foreign workers.
The city faces tough competition from its wealthier neighbors who are seeking to wean themselves off dependence on hydrocarbons by expanding the services sector – such as hospitality and finance – that have long been the mainstay of oil-poor Dubai’s economy.
Saudi Arabia, which has attracted many expatriates with bumper salaries, is developing new industries and opening up entertainment. After being closed to tourists except for pilgrims, the kingdom is promoting historical sites and considering legalizing the sale of alcohol. Qatar, which has featured in the FIFA World Cup, is also expanding its hospitality.
“The cuts should support the tourism and hospitality sector, after recovering from the pandemic,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “The move should also be welcomed by many residents, most of whom are expats.”
MMI, one of two Dubai companies that distributes alcohol, said it would waive the personal license fee required to buy alcohol and reflect the elimination of taxes on its products.
At one store in Dubai, staff were informed of the decision late in the evening on New Year’s Eve. He worked overnight at many of the city’s fireworks celebrations to relabel. “I have never seen prices as low as this,” said one experienced staff member.
Dubai, the capital of the Gulf party, has for decades been able to attract more tourists and a wealthy expatriate workforce than its regional rivals because of the tolerance of its Muslim population at home for the city’s more liberal lifestyle.
But tourists regularly complain about the prohibitive cost of licensed restaurants, which tend to mark the price of alcohol four to five times. “It will be interesting to see if this tax break is fully passed on to consumers,” said one industry executive.
The city has bounced back strongly from the pandemic, luring new residents by keeping the coronavirus at bay while also keeping the economy open.
The war in Ukraine has also seen Dubai emerge as a financial haven for Russia. Easing Covid-19 restrictions in China is a new potential stream of property buyers as house prices and rents skyrocket.
As travel returns to normal, state-owned carriers and airports report strong demand. The World Cup in Qatar boosted the hotel sector with thousands of fans choosing to stay in Dubai and fly to Doha for individual matches.
Observers say that the safety of the alcohol tax can cover the loss by the planned introduction of a 9 percent corporate tax in June. The 30 percent tax on alcohol sales is one such “stealth tax” that generates income without income tax.
Dubai has benefited from the introduction of a 5 percent sales tax from the United Arab Emirates in 2018. “The impact on government revenue is expected to be limited, especially with the recovery in the non-oil sector and from previous fiscal reforms,” he said. Reverse.