In a significant development, Dubai has announced a reinstatement of a 30 per cent tax on alcohol sales effective January 1, 2025, marking the end of a two-year suspension that began in early 2023.
This change was announced to restaurants and bars through an email from an alcohol seller African + Eastern stating, “Please note, Dubai Government have informed us the 30 per cent municipality tax on alcoholic beverage purchases will be reinstated effective January 2025”, Khaleej Times reported.
Tax suspension
The alcohol tax was to be first lifted in January 2023, with this being part of a plan to lure tourists into the Emirates and to promote business within the area.
The suspension was further informally carried forward to 2024 without any formal notice which provided tremendous opportunities for hospitality premises to have lower expenses during this time.
In this period most consumers benefited from cheaper alcohol prices, although not all reduced prices were reflected by eating places that serve alcoholic products.
Implications for consumers and businesses
Responding to the tax, Eti Bhasin, the Executive Director at Majestic Retreat City Hotel and Permit Room stated “The tax could have the effect of directing guests to patronize hotels’ outlets rather than retail outlets because of attractive rates and promotional offers with alcohol”.
However, some of the restaurateurs had expected the tax rate to be as low as 15 per cent which explains why the confirmation of the full 30 per cent shocked most the people in the restaurant industry.
Economic considerations
This decision is in line with a broader fiscal policy in Dubai that focuses on the sale of alcohol for purposes of raising municipal revenues, buoyant in the emirate’s context.
The government’s decision is an attempt to strike a middle ground when it comes to maximization of those financial gains while at the same time trying to retain Dubai’s status as a tourist heaven.
While some business establishments may lose some quantity or sales of their goods and services due to the tax increases, others may be faced with the problem of passing part of the tax to consumers in the form of higher prices.
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