An excise tax is an indirect tax levied on specific goods known for their typically negative impacts on human health or the environment, commonly referred to as 'excise goods'. The UAE government has introduced this tax to reduce the consumption of unhealthy and harmful products, while also generating additional revenue to support essential public services. This tax policy is designed to discourage the use of products that threaten human health and the environment, in line with the government's dedication to promoting public health and sustainability.
The effect on consumers is clear, as they will face higher prices for goods considered harmful to human health or the environment. This increased cost acts as a deterrent, encouraging consumers to opt for healthier choices and decreasing overall demand for such products. By influencing consumer behavior through pricing, the excise tax aids in cultivating a healthier population and a more environmentally aware society in the UAE.
Excise tax obligations apply to individuals engaged in various activities, including importing excise goods into the UAE, producing excise goods for consumption in the UAE, storing excise goods in the UAE under certain conditions, and releasing excise goods from a designated zone. In the UAE, excise tax is currently imposed on a variety of goods, including tobacco and tobacco products, liquids used in electronic smoking devices, and the devices themselves. Additionally, the tax is applied to carbonated drinks (excluding sparkling water), energy drinks, and sweetened beverages.
Carbonated drinks include any aerated beverage except for unflavoured aerated water, as well as concentrates, powders, gels, or extracts intended to produce an aerated beverage. Energy drinks are defined as beverages marketed or sold for their stimulating properties, containing substances like caffeine, taurine, ginseng, and guarana, or any similar stimulating substance. This definition extends to concentrates, powders, gels, or extracts meant for energy-enhancing drinks. Tobacco and tobacco products encompass all items listed in Schedule 24 of the GCC Common Customs Tariff.
Currently, carbonated drinks are subject to a 50 percent excise tax, while tobacco products are taxed at a significant 100 percent rate. Similarly, energy drinks, electronic smoking devices, and the liquids used in these devices are all taxed at a rate of 100 percent. Furthermore, any product containing added sugar or sweeteners is taxed at a 50 percent rate. These high tax rates are intended to discourage the consumption of these goods.
Excise tax is calculated based on the excise price of goods, determined as the higher of the price listed by the Federal Tax Authority (FTA) for excise goods or the designated retail sales price minus any included excise tax. The tax is then computed as a percentage of this tax base. The excise price includes all applicable taxes except VAT. The final selling price comprises the tax base, the excise tax at the specified rate (50 percent or 100 percent), and VAT. For goods with a 50 percent tax rate, the excise tax accounts for 33.33 percent of the selling price before VAT, while for goods with a 100 percent tax rate, it constitutes 50 percent of the selling price before VAT.
When excise goods are imported, stockpiled, produced, or released for consumption in the UAE, the individual or entity responsible at that moment must register for excise tax. This action designates them as a taxable person for excise tax obligations. In the UAE, there is no threshold for excise tax registration, meaning that any person involved in the import, production, or stockpiling of excise goods is required to register for excise tax. The FTA may grant an exemption from registration to a person who imports excise goods into the UAE if the FTA determines that they do not engage in regular importation of excise goods. The FTA defines 'regular' importation of excise goods as occurring more frequently than once every six months or when the person imports for the fourth time within a 24-month period.
Upon registering for excise tax, the taxable must submit their excise tax return by the 15th day of the following month and pay the excise tax accordingly. Having been implemented years ago, the excise duty in the UAE stands as a testament to the government's enduring commitment to public health, environmental sustainability, and economic stability. As we reflect on the past years, we need to continue to support these initiatives, make informed choices, and work together towards a healthier and more prosperous future for all.
The writer, Mahar Afzal, is a managing partner at Kress Cooper Management Consultants. The above article is not an official opinion of Khaleej Times but an opinion of the writer. For any queries/clarifications, please feel free to contact him at mahar@kresscooper.com.
