The UAE government announced a unilateral decision to increase the number of products required to pay excise duty. This is part of the government’s agenda to reduce the consumption of unhealthy products. The tax was first introduced by the government in 2017 and targeted more than 1700 products. According to Affinitaconsulting, about 60% of the products consisted of carbonated soft drinks, while the remaining 26% and 14% were subjected to tobacco products and energy drinks respectively.
About two years later after the introduction of excise tax on certain products, the UAE government decided to increase the number of products required to pay the excise tax by more than double. Affinitaconsulting firm attributes the drastic move to reduce the consumption of harmful and unhealthy commodities. Another reason for such a move was to increase the amount of revenue collected by the government. Below is everything you should know regarding excise duty in UAE.
The Main Objectives of Excise Tax
There are only two main objectives for introducing the excise tax and expanding the number of products subjected to it. The objectives are:
- To lower the supply and consumption of unhealthy and harmful products that are meant for human consumption. The tax specifically targets harmful products in the food and beverage industry as well as tobacco products.
- To increase the revenue basket for the government.
People Eligible to Register for Excise Duty
- Manufacturers of the affected commodities
- Wholesalers and Stockpiles
- Importers of affected goods
- Distributors and warehouse keepers from a designated area
It is therefore important that the above-named persons or groups who deal with manufacturing, distribution, and supply of e-cigarettes, liquids used in smoking devices, and sweetened carbonated drinks should register as taxpayers of excise duty with immediate effect. Failure to do within the specified time frame will attract hefty fines among other business obstacles. Stockpiles under this category include a business that holds goods that are subjected to excise duty, yet the respective tax has not yet been paid. Most of the businesses under this category may include supermarkets and small-scale retailers.
The Most Affected Commodities
There is no registration limit of products subjected to the excise tax. The most affected commodities include:
- Energy drinks
- Fizzy soft drinks
- Tobacco and other products that have tobacco in them
The 2019 Amendments
The amendments in 2019 were meant to widen the net of products subjected to the tax introduced two years earlier. The new bill included,
- All sweetened beverages that contain processed sugar
- Devices and tools used for electronic smoking
The government also introduced a new minimum fixed charge of the excise duty which was to be played as follows:
- Individual cigarettes are charged a minimum fixed rate of 0.40 AED
- Every gram of waterpipe tobacco or related commodities have a minimum fixed charge of 0.10 AED
Definition of Sweetened Beverages
A sweetened beverage is defined as any drink whose source of sugar or natural or processed sweeteners is directly added to a drink to a beverage to make it ready to drink. The source of sugar entails white sugar, soft brown sugar, soft white sugar, powdered sugar, and glucose syrup. The category of sweeteners includes aspartame. Neotame, saccharin, and related salts and sorbitol. The list also contains powders and gels that can be converted to sweetened drinks.
Sweetened Drinks Exempted from Excise Duty
The only products excluded from this category include drinks that have at least 75% of milk and its substitutes. The category also excludes some milk substitutes, baby food, and baby formulas. Drinks made for special medical reasons and other drinks consumed for underlying dietary needs. Other beverages which might contain alcohol.
Excise Duty Rate
- 100% excise duty is charged on
- Liquids used in smoking devices and tools
- Energy drinks
- Tobacco and related commodities
- 50% excise duty is charged on
- Any drink that contained processed sugar
- Carbonated soft drinks
The Role of Business Owners and Managers
Managers and business owners are supposed to:
- Classify their commodities
- Identify the specific goods that are subjected to excise duty
- Register with the relevant government authority such as FTA
- Evaluate their tax liability and take note of tax trigger points
- Asses the pricing impact and how it will affect their tax liabilities
- Get the ERP and process any relevant changes that need to be implemented
Benefits of Consulting a Tax Advisory Firm
- They help with registration and de-registration of excise tax
- They help with product classification which is essential in qualifying and determining the required amount of tax to be paid to the government.
- Help with stock counting and management
- Become your long tome tax agent and adviser
- Filling your return when they fall due as well as offering compliance services
- You can consult them on the latest tax regulations and amendments