Taxing times for Middle Eastern beauty

The introduction of new taxes in Saudi Arabia and the UAE has dampened personal care product sales, as Heba Hashem, Paul Cochrane and Poorna Rodrigo discover

Consumers do not like sales taxes and they are particularly sensitive to tax-based price increases.

So, it is no surprise that personal care product sales in the Middle East have been dampened by the introduction of value added tax (VAT) in Saudi Arabia and the United Arab Emirates (UAE) in January 2018, which have inflated beauty product prices.

This follows the imposition of an expatriate dependent tax in Saudi Arabia last July, as well as new excise taxes (on non-beauty lines) in Saudi Arabia (June), the UAE (October) and Bahrain (December).

Oman will also implement an excise tax from June 2018, and Qatar and Kuwait are expected to follow suit soon.

The result is that Gulf consumers have for the time being at least become cautious spenders, especially towards non-essential goods and services.


Political and economic barriers

"The year 2017 witnessed many beauty and personal care brands facing a decline or slowdown in sales compared with the last two years due to political and economic developments in the Gulf Cooperation Council (GCC) region, as this has translated into reduced footfall in stores, less frequent buying or downgrading," says Amna Abbas, Senior Analyst, Beauty & Fashion at Euromonitor International.

It is possible that this slowdown may not last, as consumers get used to the new taxes. According to India-based TechSci Research, the GCC beauty product market, which includes skin care, hair care, fragrances and cosmetics, is forecast to reach US$12.81bn by 2022, from $6.9bn in 2016, driven by an estimated compound annual growth rate of 11.13%.

But for now, the sailing is far from plain in the GCC personal care product market. One problem is the blockade imposed by Bahrain, Saudi Arabia, the UAE and Egypt on Qatar since June 2017 over diplomatic disagreements, which has forced many companies to adjust their operations in the region.

"Adaptability to change has been key for personal care retail businesses who operate in multiple GCC countries and deal with Qatar.

Supplies had to be rerouted to their end destination, which meant logistically and financially adjusting as well. This is causing a slowdown in the region's beauty and personal care market," Abbas explains.

A survey by Middle Eastern comparison site yallacompare, whose results were released in January, found that . . .

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