New Electronic Tax System in UAE for Excise Tax

Introduction of Excise Tax in UAE

The enormous effort that has been put forwarded by the UAE Government to build an eco-friendly business market is known to the whole world. These efforts include setting up of a well-established tax economy, increased financial compliance, flexible business setups, etc. However a unique tax was introduced by the UAE government in 2017 called Excise Tax. It is unique because of 2 primary reasons behind its introduction:

• First is to reduce the consumption of harmful and unhealthy commodities categorized as specified goods by increasing their price with imposition of excise tax
• Second is to build a better public infrastructure from the derived revenue collected from it

Specified goods, Rates and Applicability for Excise Tax

Unlike the rate of VAT in UAE which is 5% applied on various consumer goods, the excise tax is imposed at higher rate on selected goods taxable under VAT. Specified Goods and the corresponding rates that fall under the purview of Excise Tax are:

• Carbonated Drinks at the rate of 50%
• Energy drinks which are physical or mental stimulants at the rate of 100%
• Tobacco and tobacco based products listed within Schedule 24 of the GCC Common Customs Tariff at the rate of 100%

The UAE Government is aiming to expand the scope of taxable excise goods. This additional items includes:

• Liquids used in electronic smoking devices whether or not they contain nicotine or tobacco
• Electronic smoking devices and tools
• Sweetened drinks

Excise Tax is applicable for all business engaged in following activities:

• Import of excise goods to UAE
• Production of excise goods in UAE
• Stockpiling of Excise Goods in UAE
• Owner/partner of warehouse or designated zone used for storing excise goods

There is no threshold limit applicable for registration of Excise Tax. Any business which carries on any of the above activities must go for excise tax registration.

New Electronic System for registering Excise Goods

Earlier any business, as mentioned above, which dealt with the sale of excise goods, had to raise Excise Tax at the point of manufacture or sale to retailers or end consumers. This resulted in an increase in price of the product and the raised amount was paid to Authority. As per the New Electronic System, every business will have to register their product being sold in the market. They should upload the below mentioned information

1. Details about the Product – Brand, Net Content, Images, Country of origin, GTIN/Item Code, HS Code etc
2. Details about the product’s ingredients
3. Details of marketing campaign like images or videos
4. LAB Report as requested
5. Details about price –Price at which the same is sold by UAE Retailers or the price in the relevant country in case it is not sold in UAE

The registration of each item is to be done at the Federal Tax Authority (FTA) website. Every document which is supportive to the above details should be maintained by the business.

Impact of New Tax System for Excise Tax

The definitive purpose of introduction of Excise Tax was to reduce the consumption of harmful products. E-media termed it as “sin tax”. As per Emirates New Agency, the percentage of smokers over the age of 18 has decreased to as low as 9.1 percent from 11.1 percent in 2010. This significant decrease can be undeniably credited to imposition of Excise tax on tobacco products along with other initiatives. However the new tax system on excise goods will further make sure that no products are sold in the market without falling under the purview of the same. The compliance with regards to sale of such products is expected get more strict in future, and so any business dealing in such goods needs to keep an eye on the excise tax developments guidelines, procedure and clarifications by FTA. The blog post is written by Mr. Nadeem, Tax Advisor at Flyingcolour Accounting & Tax Services, who specializes in accounting and VAT system in UAE. Feel free to call for your any query related to accounting and VAT. Please send inquiry to info[at]flyingcolour[dot]com or call +971 4 4542366.