BUSINESSES WILL BEAR SOME OF THE VAT BURDEN ON FOOD
High-end restaurants may suffer, but there is an opening for cheaper options
Restaurants and supermarkets are likely to absorb some of the cost after VAT comes into effect in less than two months, but say in other cases consumers will be subjected to price rises.
Consumers have mixed feelings on the impact of a tax on food but a combination of pressures may just be the tipping point some expatriates, according to Nabih Rhayem, the owner of Abu Dhabi’s Bel Mondo Cafe.
“I love the UAE and have spent more than half my life here but things are getting tougher. It’s why I’m planning to sell my business,” he said.
The Federal Tax Authority released on Wednesday a more detailed list of goods and services that will be subject to the levy, which include a 5 per cent fee on all food items. This is in addition to a host of services including electricity and water.
Mr Rhayem will add 5 per cent to a customer’s overall bill but is unable to increase his prices to make up for the extra cost of power and water.
With high-end catering making up a large part 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 5 to 7 per cent more but if it dips further, I will have to close down,” Mr Rhayem said. “I’m still doing OK but I’m wary for future.”
Supermarket Spinney’s said its main objective was to ensure that customers were not inconvenienced by VAT.
“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, the chain’s spokeswoman.
Some feel that the tax, while uncomfortable, is necessary. Arlequin, a Khalidiya-based caterer that feeds about 200 people a day, said it would adjust its business accordingly.
“We’ve enjoyed 40 years of doing business without taxation,” said Arlequin’s 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 OK with the tax, it is what it is,” she said.
But for those that are cutting costs, this may just be the right opportunity for cheaper eateries such as Freedom Pizza. Ian Ohan, Freedom Pizza’s founder and chief executive, said the pressure was driving diners 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.
After the financial crisis of 2008, Euromonitor highlighted specific trends. It said that in many countries, diners turned to cheaper meals. In the UK, for example, Domino’s Pizza’s sales increased by 15 per cent in one six-week period during January-February 2009, compared with the same time period a year earlier.
Mr Ohan believes this could be the same 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 10th location by the end of the year in Sharjah.
Mr Ohan said: “I don’t think it will hurt our business specifically – 5 per cent on a Dh100 order isn’t going to change the world.”