UAE: Scope and Overview of Excise Duty

An excise tax represents an indirect tax imposed on particular goods known for their typical adverse effects on human health or the environment, and these items are commonly known as 'excise goods’.

The UAE Government has implemented excise tax as a measure to curb the consumption of unhealthy and harmful goods, while simultaneously generating additional revenues to fund essential public services. This tax policy aims to discourage the consumption of products that pose risks to human health and the environment, aligning with the government's commitment to promoting public well-being and sustainability.

The impact on consumers is evident, as they will be required to pay higher prices for goods that are deemed detrimental to human health or the environment. This increased cost serves as a deterrent, encouraging consumers to make healthier choices and reducing the overall demand for such products. By influencing consumer behavior through pricing mechanisms, the excise tax contributes to fostering a healthier population and a more environmentally conscious society in the UAE.

Excise tax obligations apply to persons involved 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 specific circumstances, and releasing excise goods from a designated zone.

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In the UAE, excise tax is presently imposed on a range of goods. These items include tobacco and tobacco products, liquids utilized in electronic smoking devices, and the devices themselves. Additionally, the tax is levied on carbonated drinks (excluding sparkling water), energy drinks, and sweetened beverages.

Carbonated drinks encompass any aerated beverage except for unflavored aerated water, as well as concentrates, powders, gels, or extracts designed 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 intended for energy-enhancing drinks. Tobacco and tobacco products are inclusive of all items listed in Schedule 24 of the GCC Common Customs Tariff.

Currently, carbonated drinks are subject to a 50% excise tax, while tobacco products face a hefty 100% tax rate. Similarly, energy drinks, electronic smoking devices, and the liquids used in these devices are all taxed at a rate of 100%. Additionally, any product containing added sugar or sweeteners is taxed at a 50% rate. These high tax rates are designed to discourage the consumption of these goods.

?Excise tax is calculated based on the excise price of goods, which is 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 encompasses all applicable taxes except VAT. The final selling price includes the tax base, the excise tax at the specified rate (50% or 100%), and VAT. For goods with a 50% tax rate, the excise tax makes up 33.33% of the selling price before VAT, while for goods with a 100% tax rate, it constitutes 50% 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 enroll 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 engaged 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 import 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 happening more frequently than once every 6 months or when the person imports for the 4th time within a 24-month periods.

?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, keep 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 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?[email protected] .