In our previous article, we examined the use of excise tax to curb consumption of detrimental products. We also established that excise duty is a consumption tax imposed when goods are ready for public circulation in the UAE. In our broader discussion on excise duty, we emphasized two critical elements necessary for its enforcement. Firstly, it is essential to identify and categorize products subject to excise duty correctly to ascertain the appropriate tax rate. Secondly, we underscored the importance of determining the base price to ensure accurate application of excise duty. This article provides a comprehensive analysis of products subject to excise duty, offering guidance on identifying and categorizing them within their respective excisable categories.
Not all products are subject to excise tax; only specific harmful items such as carbonated drinks, energy drinks, sweetened beverages, tobacco products, smoking devices, and the liquids used in them—referred to as ‘excisable goods’—are liable for excise duty at 50 per cent or 100 per cent of the excise price. Tobacco refers to the plant, the leaves of which are dried and processed for smoking, chewing, or snuffing. Tobacco products include cigarettes, cigars, pipe tobacco, snuff, chewing tobacco, and various forms of smokeless tobacco. Smoking devices are tools or apparatus used to smoke tobacco or other substances, such as pipes, hookahs, and electronic cigarettes (e-cigarettes or vapes); and liquid used in the smoking devices typically refers to substances used in electronic cigarettes (e-cigarettes or vapes) to produce vapor for inhalation.
For excise tax purposes, the term “carbonated drinks” includes all aerated beverages except unflavoured aerated water (sparkling water). This definition also covers any concentrates, powders, gels, or extracts meant to be transformed into an aerated beverage. An aerated beverage contains carbon dioxide gas, which creates bubbles and gives the beverage its fizziness. Common examples of carbonated drinks include carbonated soft drinks, sodas, etc. Energy drinks refer to beverages that may contain stimulant substances designed to offer mental and physical stimulation. These substances can include caffeine, taurine, ginseng, guarana, and potentially other ingredients. Energy drinks encompass not only the liquid beverage but also any concentrates, powders, gels, or extracts intended for the preparation of an energy drink. The common examples of energy drinks are Red Bull, Monster Energy, Rockstar Energy, etc.
Sweetened beverages include products to which sugar or a sweetener is added. These products can take the form of ready-to-drink beverages meant for immediate consumption or concentrates, powders, gels, extracts, or any other form that can be converted into a sweetened drink. The common examples include but are not limited to white sugar, soft white sugar, powdered sugar, soft brown sugar, glucose syrup, and sweeteners like saccharin and its salts, aspartame, sorbitol, neotame, and others. Sweetened drinks do not include ready-to-drink beverages with at least 75 per cent milk and milk substitutes; baby formula, follow-up formula, or baby food; beverages for special dietary needs; and beverages for medical uses. To determine a product that is being marketed as an energy drink, carbonated drinks, or sweetened beverage, various factors can be considered. These include the type of marketing materials used, the product’s labeling and packaging, descriptions of the product in marketing materials like websites or catalogs, references to mental or physical benefits from consuming the product, and mentions of increased energy levels.
Conversely, signs that a product may not be marketed as an energy drink, carbonated drinks, or sweetened beverage could include focusing only on health benefits like hydration or vitamin content and a lack of emphasis on the benefits of consumption in the packaging or marketing materials beyond taste. Where the concentrate intended to be transformed into a sweetened beverage at the retail point has already been taxed in the UAE, the resulting drink made from that concentrate at the retail sale point is not classified as an excise good for tax application purposes. Alcohol and sparking water are not considered carbonated drinks, energy drinks, and sweetened beverage for excise tax purposes. Any product that fits the criteria for a sweetened drink but is also carbonated will be categorized as a carbonated beverage. If a product meets the criteria for multiple excise goods categories, it will be classified as the excise good subject to the highest tax rate and will be taxed accordingly at that rate. The businesses involved in the excisable goods should categorize the goods properly to apply the excise tax rate accurately.
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.
