Dubai's decision to scrap a 30 per cent alcohol tax for 2023 has been welcomed by the hospitality sector, but insiders say discounts are unlikely to be passed in full to customers due to rising inflation and operational costs.
The 12-month suspension of the levy on alcohol sales offered a New Year boost to the industry, hot on the heels of one of the busiest final quarters in recent years.
Driven by World Cup regional tourism and UAE visitor numbers returning to pre-pandemic levels, hotels enjoyed a bumper final three months of 2022.
Hotel operators said 2023 was unlikely to match margins achieved last year, but the alcohol tax cut would compensate for other inflationary costs elsewhere.
Sid Sattanathan, general manager of the Radisson Hotel in Damac Hills, recently opened Issei, a Peruvian and Japanese rooftop bar and restaurant where cocktails are about Dh60.
'Prices can't be cut overnight'
As his operational costs have increased, a 30 per cent discount was unlikely to be passed on in full, he said.
“There are lots of things to consider, and we cannot change our prices overnight as we have already purchased stock for around two weeks under the old prices,” he said.
“We will pass on some of the benefit to the customer, but there are so many other inflationary pressures on our restaurants to consider.
“The rising prices of food and fuel have impacted our margins, and we have not passed these extra costs on to our customers.
“This tax cut will allow us to maintain our high standards, to operate fairly and give our guests the quality they deserve.”
Mr Sattanathan said the hotel was likely to pass on some discounts within weeks, once current stock had been replenished at the new discounted rates.
Prices of food and beverages steadily increased throughout 2022 due to global inflation, but began to decrease towards the end of the year, receding to a seven-month low of 4.5 per cent in October, according to global analysts at Focus Economics.
The UAE economy is expected to grow by 7.6 per cent in 2023, up from the 5.3 per cent Central Bank forecast in July.
Great news for businesses and customers
Nick Comaty, vice president for Middle East, Africa, Turkey and India of food and beverage operations and development at Ennismore hospitality, said the tax cut in Dubai would offer a huge boost for business.
“In general, it is great news for the industry, the business and consumers,” he said.
“It is something we were hoping for a long time, it is only a trial basis but hopefully it will remain.
“While alcohol prices are extremely high in restaurants, hotels and bars ― it is not because operators are making a huge margin.
“I have worked all over the world and our margins were always better than here [in Dubai].
“The biggest issue was always the cost, now that has been reduced you will see better pricing across all our venues.”
The Dh270 personal alcohol licence fee has been scrapped as of January 1, while alcohol consumption was decriminalised in 2020 under wider legal reforms.
Alcohol law changed under 2020 legal reforms - in pictures
Previously, a charge for consuming alcohol without a licence could be tacked on if someone was arrested for another offence.
That happened rarely but is no longer enforced at all by law.
A valid Emirates ID is still required to purchase alcohol, and buyers must be 21 and consume responsibly and respectfully.
Alcohol stores across Dubai were busy changing price lists and displaying new offers across their retail outlets on Monday.
The change is expected to result in fewer people travelling to buy liquor in the Northern Emirates, where it has been traditionally less expensive ― without the municipality tax.
“The reality is a lot of alcohol was coming into Dubai from the Northern Emirates, now the prices are more aligned that will be removed completely,” said Mr Comaty.
“You will begin to see a big drop in pricing on some products, but less so on others.
“It is about getting that right balance.
“We have already discussed internally to pass this on to the consumer, but in a way that adds value and better service.
“All restaurateurs need to lead the way by providing better value and discounts for customers.”