Dubai has kicked off the new year by scrapping a 30 per cent tax on alcohol sales and making liquor licences free.
It is an apparent move to bolster its status as the Middle East’s leading business and tourism hub.
Faced with increasing competition from Persian Gulf neighbours 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.
Liquor is widely available in Dubai. But a pint of beer can cost more than US$15 (S$20) at restaurants, while bottles of wine can start at more than US$100.
That’s prompted many residents to drive to other emirates like Umm Al Quwain, about 80km 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 licences, which cost about US$70 a year, will now be free.
They’ll still be needed because the United Arab Emirates restricts Muslims from buying alcohol.
Expatriates make up more than 80 per cent of UAE’s population of 10 million people, of which Dubai is the biggest city.
The country’s government is planning to attract millions more in the coming decades.
In the past two years, UAE authorities introduced a raft of measures aimed at loosening social restrictions.
It moved to a Monday-Friday working week and ended a ban on unmarried couples living together.
The country has 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.
Taxes from alcohol sales have been an important source of revenue for Dubai’s government. Still, the impact of reducing them could be offset by a 9 per cent federal corporate tax that’s set to start in June.
The city’s quick economic rebound from the coronavirus pandemic has also boosted key sectors like tourism and real estate, which will likely help absorb some of the shortfall in alcohol income.
The latest initiative will last for a year and has been described as a trial period by industry executives informed of the decision, the Financial Times reported on Sunday.
A 5 per cent value added tax will continue to be levied on alcohol sales.
