UAE consumers to bear some of VAT burden on food

High-end eateries my suffer, but there is an opportunity for others

Restaurants in the UAE may not be filling as many tables, but the introduction of VAT may present some an unexpected opportunity. Mona Al Marzooqi / The National

Restaurants and supermarkets are likely to absorb some of the cost after value added tax comes into effect in less than two months, but say in other cases consumers will be subjected to price hikes.

Consumers have mixed feelings on the impact of a tax on food, but the combination of pressures may just be the tipping point some expatriates, according to Nabih Rhayem, owner of Abu Dhabi’s Bel Mondo Cafe.

“I love the UAE and have spent more than half my age here, but things are getting tougher. It’s why I’m planning to sell my business,” he said.

The Federal Tax Authority released a more detailed list of goods and services that will be subject to the levy on Wednesday, which include a five per cent fee on all food items. This is in addition to bevy of services including electricity and water.

Mr Rhayem will add five per cent to a customer’s overall bill but is unable to increase his prices to make up for other expenses of power and water.

With high-end catering making up a large chunk of his company, Bel Mondo Cafe suffered a 20 per cent drop in profits this year. “I’m expecting a further drop in business next year. I’m willing to lose five to seven per cent more, but if it dips further, I will have to close down,” he said. “I’m still doing okay, but I’m wary for future.”

Supermarket Spinney’s said its main objective was to ensure that customers were not inconvenienced by the VAT introduction. “Where we can absorb the cost, we aim to do so; however, there may well be some instances where this is not possible,” said Colette Shannon, communications manager at Spinney’s.

Some feel that the tax, while uncomfortable, is necessary. Arlequin, a Khalidiya-based caterer that feeds around 200 people a day, said it will adjust its business accordingly. “We’ve enjoyed 40 years of doing business without taxation,” said Arlequin owner, Mira Feghali. “We just have to be more efficient in the way we handle our business.”

The French and Lebanese gourmet delicatessen said it was moderately priced with a strong client-base. “We’ve looked at the financial impact of this and it’s very minimal. We’re okay with the tax, it is what it is,” she said.

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But for those that are cutting costs, this may just be the right opportunity for cheaper eateries such as Freedom Pizza. Ian Ohan, founder and chief executive of Freedom Pizza, said the pressure is driving consumers to look for bigger values. “We’re not five-star dining. We’re a good alternative to going out,” he said.

The company serves about 35,000 customers a month, with delivery making up 95 per cent of its business. However, if residents begin to take a break from dining out given the rising costs, delivery is still an option.

When the financial crisis of 2008 rocked many places, Euromonitor highlighted interesting trends. In many countries, consumers returned to cheaper meals. The UK, for example, Domino’s Pizza saw sales increase 15 per cent during a six-week period compared the same time period a year earlier.

Mr Ohan believes this could be the same environment for Freedom Pizza. “People will go out less, stay home more and still want something nicer. We can benefit from these situations,” he said.

And in preparation, Freedom Pizza will open its tenth location by the end of the year in Sharjah.

Mr Ohan said: “I don’t think it will hurt our business specifically — five per cent on a Dh100 order isn’t going to change the world.”