From 1 January 2023, the Dubai Municipality removed its previously hefty 30% taxation on all alcohol sales, a tax widely acknowledged to have driven alcohol prices up so high that consumers would visit other emirates to make their purchases.
The scrapping of this tax is Dubai’s latest bid to win back local shoppers and increase tourist spend, amidst a flurry of other liberalising regulatory shifts in the city such as ending a ban on unmarried couples living together.
That said, with alcohol largely still considered a ‘haram’ or illegal substance by Muslim law, the Dubai Municipality is proceeding with caution, noting that this tax removal is only ‘temporary’ and a pilot change subject to confirmation.
“Dubai Municipality has temporarily stopped collecting the 30% fee from alcoholic beverage companies,” the municipal body said via a formal statement and via its social media.
“This will only be effective for a period of one year from the beginning of 01/01/2023 to the end of 12/31/2023.”
Despite its best efforts to stress that this tax removal is by no means a permanent one, local alcohol firms have leaped to not only welcome the announcement but also make what appears to be lasting process changes to the local alcohol licensing process, which all local residents need to apply for in order to purchase alcohol in stores.
“Starting January 1 2023, all alcohol prices [in Dubai] are tax-free [and] alcohol licenses are at no cost,” Dubai state-linked alcohol firm African+Eastern stated.
“[This is a welcome move that means] a fixed price reduction on [consumers’] favourite brands, and we are also working towards an easier process for license application that can be made in-store.”
Alcohol licenses previously cost AED 270 (US$73.50) per application, renewable annually. Tourists to Dubai do not require a liquor license and can make purchases using their passports alone.
Dubai has two major alcohol firms, the other being Maritime and Mercantile International (MMI), part of the Emirates Group, which also showcased instantaneous support for Dubai Municipality’s decision.
“The removal of the 30% tax [have been] reflected across all alcoholic beverage products in all our 21 MMI stores in Dubai,” MMI Group CEO Tyrone Reid told us.
“Consumers now no longer need to make trips across the country to other Emirates to stock up on drinks, but can take advantage of these savings.”
All alcohol purchases will still be subject to a 5% value-added tax (VAT).
Revenue vs economy
Dubai is widely considered the most liberal city in the region. From an alcohol perspective, it is the only one allowing residents to apply for liquor licenses to make purchases as opposed to markets like Saudi Arabia where this is completely banned and Oman where hefty taxation still continues.
The vast majority of Dubai’s population comprises expatriates, which makes alcohol an important point of sales and revenue for the local economy. The 30% taxation in particular has been a key source of local revenue for many years, and the impacts of the elimination of this on local economics remain to be seen.
That said, it does appear that Dubai Municipality is willing to take that chance in order to boost its tourist numbers and businesses, in hopes that this will more than make up for the loss of that revenue, in addition to the upcoming federal corporate tax expected to be implemented in the middle of 2023.