Dubai kicked off the new year by scrapping a 30% tax on alcohol sales and making liquor licenses free, in an apparent move to bolster its status as the Middle East’s leading business and tourism hub.
Faced with increasing competition from Persian Gulf neighbors such as Saudi Arabia and Qatar, the government has introduced a series of rules over the past few years to make itself more attractive for foreigners to live and work.
Tourism is a key plank of the emirate’s economy, but it’s been geared predominantly toward the luxury segment. The latest move will leave Dubai better-positioned to cater to wider swathes of the market.
The move is “extremely positive” for restaurants and hotels, said Tim Cordon, Radisson Hotel Group’s chief operating officer for the Middle East and Africa.
Liquor is widely available in Dubai, but a pint of beer can cost more than $15 at restaurants and bottles of wine can start at more than $100. That’s prompted many residents to drive to other emirates like Umm Al Quwain, about 80 kilometers (50 miles) from Dubai, where prices are much cheaper.
One of Dubai’s two alcohol distributors, Maritime and Mercantile International, announced the move with advertisements proclaiming an end to these long drives. Dubai’s other state-linked distributor, African & Eastern, has already cut prices to reflect the removal of the sales tax, it said in an Instagram post.
Both firms said liquor licenses, which cost about $70 a year, will now be free. They’ll still be needed because the United Arab Emirates restricts sales of alcohol to Muslims.
The emirate’s burgeoning culinary scene recently got a boost from Michelin, which awarded 11 restaurants at least one star. Still, the city sometimes compares unfavorably to other hubs on cost and hoteliers have lobbied for a reduction in levies.
“Where the prices diverge is when you look at the wine list,” said Cordon.
Dubai’s latest initiative will last for a one-year trial period and the government will likely monitor how effectively the lower prices are passed on to consumers. A 5% value added tax will continue to be levied on alcohol sales.
While taxes from alcohol sales have been an important source of revenue for Dubai’s government, the impact of reducing them could be offset by a 9% federal corporate tax that’s set to start in from June.
The city’s quick economic rebound from the pandemic has also boosted key sectors like tourism and real estate, which will likely help absorb some of the shortfall in alcohol income.
Expatriates make up more than 80% of the 10-million population in the UAE, of which Dubai is the biggest city. The country’s government is planning to attract millions more in the coming decades and authorities have introduced a raft of measures aimed at loosening social restrictions.
The UAE ended a ban on unmarried couples living together and moved to a Monday-Friday working week last year. It also eased immigration rules, including introducing “golden visas” that allow foreigners to work, live and study without needing a sponsor in the country.
Alcohol is still completely banned in Saudi Arabia. In other regional countries including Qatar and Oman, it is heavily taxed.