September 20, 2017 9:02 pm JST

Asian migrant workers in UAE not thrilled with tax plan

New levies on beverages, tobacco needed to offset falling oil revenues

HIDEMITSU KIBE, Nikkei staff writer

A man pushes a trolley as he buys food supplies at a supermarket in Dubai. © Reuters

DUBAI -- The United Arab Emirates is set to levy new taxes on energy drinks and carbonated beverages along with tobacco, disappointing news to the country's soft drink lovers, among them millions of Asian migrant workers.

In a May announcement, the Federal Tax Authority said it will impose a selective tax of 100% on tobacco and energy drinks and a 50% tax on carbonated beverages.

Supermarkets in Dubai, one of the seven emirates that comprise the UAE, are seeing a rush of shoppers snapping up cases of carbonated drinks before the October increase.

For one 34-year-old Filipina waitress, the new levies seem a good reason to return home after working for two years in Dubai. A daily cola drinker, the tax will make it harder for her to make ends meet, she said.

The woman moved to the emirate because of its high wages, but didn't expect the sky-high prices. She also mentioned the possibility of further tax hikes and the availability of better jobs in Manila.

Many consumers in the UAE, however, aren't ready to cut down on products subject to the new taxes, which are being introduced ostensibly for public health. A 44-year-old Pakistani driver said he has no intention to reduce intake of his favored drinks. 

Carbonated drinks are notable for their low prices in a country where just about everything is expensive. A can of cola sells for just one Dirham ($0.27), while energy drinks go for around eight Dirham.

A pack of cigarettes is priced at 10 Dirham, meaning pack-a-day smokers will see their monthly tobacco habit double to about 600 Dirham.

New revenue needed

Public finances in the UAE depend heavily on oil sales, which have been hit hard by the fall in crude prices, now around $50 a barrel since their high of $146 in 2008. With the nation's population expected to grow sharply in the coming years, the government will be unable to continue its former largesse, hence the new taxes, despite claims of concerns over health.

But since selective taxes could prompt many to cut their spending on taxed items or switch to alternatives, it is unclear how the new levies will boost revenue.

Dubai will also introduce its first value-added tax in January 2018.

The new taxes could impact sales of foreign beverages, among them Oronamin C, a carbonated energy drink from Japan's Otsuka Pharmaceutical. The drink is hugely popular in the country -- so much so that it could be called a "national beverage," according to the company.

Recent tax reform plans in Gulf nations in response to cheaper oil could force many companies like Otsuka to review their marketing strategies in the region.

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