Who will benefit: Cuts in municipality, electricity costs form part of Dubai’s Dh1.5b stimulus package

Dubai: With the reduction in municipality fees and those in electricity costs, businesses in Dubai will feel the immediate benefits on their cost of operations.

Those benefits can then be passed on to clients — and that could be the biggest boost to stimulate the Dubai economy over the next three months.

For instance, hotel establishments in Dubai will have their municipality fees cut to 3.5 per cent from 7 per cent (of daily sales).

Stimulus package

The sector has been hard hit by the drop in visitor numbers after travel restrictions came into place following the coronavirus spread.

Plus, event cancellations in recent weeks — a period of high activity for the city’s hospitality, exhibitions and conference sectors.

It was on Thursday evening that Dubai Government announced a stimulus package that sees cuts in business fees as well as on customs duties. Plus, there is also the reduction on utility costs.

All of this will apply for a three-month period, and which will then be reviewed.

Then there are the more incremental parts of the stimulus package – the 20 per cent return on customs duties imposed on imported goods. Dubai has a 5 per cent import duty.

From the gold jewellery to apparel, from processed foodstuffs to gadgets, importers can now plan for reduced expenses on this count for a 90-day period. Retailers are calling this a “trial run” and hoping it will soon prove to be the status quo.

The belief is that if cost to do business in Dubai reduces, then the customer gets to benefit as well.

Cost reductions

These measures “allow businesses breathing space in this time of uncertainty, where demand has fallen to a point where the cost of doing business — in certain cases — exceeds the revenues generated,” said Adv. Nasser Malalla Ghanem, Senior Partner at the law firm of NM Associates.

“Cost reductions provide an immediate stimulus to the consumer and the SME… in other words, it puts cash back into their pockets. This will be well-received by a grateful eco-system.”

Manufacturing and trade

By dropping utility costs, businesses in manufacturing stand to be the biggest beneficiary.

Incidentally, the Jebel Ali Free Zone had earlier in the week announced an across-the-board slash of 50-70 per cent in licensing and general administration fees. Trade-focussed business can expect some major cost savings.

“What is most important to us is how responsive the Government has been – and how quickly they’ve reacted to address what the economy is going through right now,” said Ahmed Khashan. Cluster President, Gulf Countries at Schneider Electric. “Undoubtedly, such actions demonstrate the government’s support for private sector and entrepreneurs – even in business conditions which no one could have foreseen at the beginning of the year.”

According to Bharat Bhatia, CEO of Conares, the steel mill operator, “This incentive will help businesses of all scales to manage their cashflow and keep the momentum. The decision to reduce electricity and water tariff for industries is also commendable.”

Part of a series

Industry sources say that the latest Dubai announcement should not be seen in isolation, but a continuation of reforms announced in the last year. Business fees had been cut during this period, and the latest one adds to it.

“The installment scheme on government fees introduced earlier was a special attraction for investors,” said Iqbal Mohammed, CEO of Emirates Companies House. “Now, the waiving of 25 per cent down payment is like a double win for the categories concerned.

“Another leap forward is the waiving off the Dh50,000 bank guarantee for customs clearance… and indirectly boost the entire business sectors in the emirate. The three months can be viewed with relief due to the initiatives announced by Dubai.”

Pre-emptive moves

Dr. Azad Moopen, Chairman and Managing Director at Aster DM Healthcare, calls the Dh1.5 billion package announced on Thursday taking care of the “concerns of the common man and businesses by reducing the charges for utilities to provide overall relief for everyone in Dubai. It is commendable a stimulus has been announced well in advance to prevent a (coronavirus-infected) slowdown of the economy.

“The package has given significant focus for ensuring smooth arrival of goods into the emirate through reduction of customs duties. Apart from this, significant measures are being announced to increase the inflow of people for tourism and trade.”

‘Ear to the ground’

As has happened in the past, the government has responded with stimulus packages at a time when the economy and businesses operating withinin it were in need for help. And with the Dh1.5 billion announcement, Dubai has extended a helping hand all over again.

“Dubai’s USP has been its competitive edge and both public and private sectors need to ensure that cost of operations is kept in check,” said Paras Shahdadpuri, Chairman, Nikai Group. “But more than the Dh1.5 billion in concessions, what impresses most is the innovative ways in supporting businesses whenever they go through rough economic patch. It is heartening to see the leaders have close ear to the ground and they come forward to help the businesses in times of difficulty.”

The Dubai Stimulus Package

For a three-month period, businesses in Dubai will see:

A freeze on the 2.5 per cent market fees levied on all facilities operating in Dubai. The fees were reduced from 5 per cent to 2.5 in June 2018.

A refund of 20 per cent on the custom fees imposed on imported products sold locally in Dubai markets.

The cancellation of the Dh50,000 bank guarantee or cash required to undertake customs clearance. Bank guarantee or cash paid by existing customs clearance companies will be refunded. Fees imposed on submitting customs documents of companies will be reduced by 90 per cent.

To boost trade, the requirement for providing a banking instrument while submitting customs-related grievances has been cancelled. In addition, traditional wooden commercial vessels (or dhows) registered in the country will be exempted from mooring service fees for arrival and departure, as well as direct and indirect loading fees at Dubai Harbour and Hamriyah Port.

The cancelation of the 25 per cent down payment required for requesting installment-based payment of government fees for obtaining and renewing licenses. The seeks to reduce the financial burden on SMEs. In addition, commercial licenses can be renewed without mandatory renewal of rental contracts.

Exemption from permits for new sales and offers.

A 10 per cent reduction in water and electricity bills including those charged in the residential, commercial and industrial sector. It also reduces deposit paid for water and electricity connections by 50 per cent.

Sops for tourism sector

There is a reduction of municipality fees imposed on sales at hotels from 7 per cent to 3.5 per cent. (In 2018, the fees was reduced from 10 per cent to 7.) Companies will be exempt from fees charged for postponement and cancellation of tourism and sports events scheduled for this year.

There is a freeze on fees for the rating of hotels.

Plus, there will be a freeze on fees charged for the sale of tickets, issuance of permits and other government fees related to entertainment and business events.