UAE VAT Update: Excise Goods, Excise Tax Rates and Methods of Calculating the Excise Price
Excise Tax was first introduced in the U.A.E in the year 2017 by Federal Decree-Law No 7 of 2017 on Excise Tax (“Excise Tax Law”) and the Cabinet Decision No. (37) of 2017 on the Executive Regulation of The Federal Decree-Law No (7) of 2017 on Excise Tax (“Executive Regulations”). The goods on which Excise Tax was initially imposed were three types of goods viz. Carbonated Goods, Energy Drinks and Tobacco and tobacco products (“Excise Goods”)
Later, towards the end of 2019, three more types of goods were added as Excise Goods. This article highlights these modifications and the method of computation involved for the purposes of determining the new tax rates.
Basic Understanding of the Excise Tax Law/Executive Regulations
What is excise tax?
Excise tax is a form of indirect taxation levied by the government on goods, which are specifically harmful to the health of an individual or for the environment. The goods which fall under this category are called excise goods.
Which goods are excise goods under the U.A.E law?
In the initial years around 2017, Excise Goods as set out in the Excise Tax Law included only three kind of goods, which are as follows:
- Carbonated drinks- Includes any aerated drink except for unflavoured aerated water. Also measured to be carbonated drinks are any concentrations, powder, gel, or extracts planned to be made into a fizzy beverage.
- Energy drinks- Includes any beverages which are advertised, or sold as an energy beverage, containing stimulating substances that provide mental and physical stimulation (includes: caffeine, taurine, ginseng and guarana or substances with similar effects). Also falling in this category are any absorptions, powder, gel or extracts intended to be made into an energy enhancing drink.
- Tobacco and tobacco products – include all items listed within Schedule 24 of the GCC Common Customs Tariff.
Is there any update in the law?
Yes, pursuant to the Cabinet Decision No. 52 of 2019 on Excise Goods, Excise Tax Rates and the Methods of Calculating the Excise Price, which came into effect i.e. 1 December 2019, three new goods viz. sweetened drinks, electronic smoking devices and tools and the liquids used in such devices and tools were added in the realm of Excise Goods set out in the Excise Decree Law. This update to the excise law will come into effect from 1stDecember 2019.
What kind of products were included in the new category of excise goods?
The update includes new specific goods-
- Electronic Smoking Devices and Tools-i)It includes all the electronic smoking devices and tools, even devices and tools which are of similar nature. It is also not compulsory that, they are used for the purpose of consumption of nicotine or tobacco, they can still be taxed even if used for any other purposes of similar nature. ii) Further, any liquid used in these kinds of devices even though they are free of nicotine shall also be taxed under excise tax.
- Sweetened Drinks-Sweetened Drinks include any product, in which a source of sugar or sweetener is added and is produced either as a ready to drink brew or concentrates or powders, gel, extracts or any other similar product that can be made into a sweetened beverage.
The source of sugar may include white sugar, soft white sugar, powdered sugar, soft brown sugar and glucose syrup.
Is there any exemption provided in the categories of goods in the excise act?
Yes, in the category of Sweetened Drinks, there are certain products which are exempted from the excise tax. They are as follow-
- consumed for special dietary needs
- Beverages which include alcohol
- Ready to drink brews that contain at least 75% milk or its alternatives
- Baby formula, follow up formula or baby food
- Handling of Foods for Special Medical Purposes.
There is no need to pay any excise tax on these goods.
What is the rate of excise tax? Is it different for different products?
The rate of excise tax is all different for different products. Which is from 50% to 100%, they are as follows-
- 50 per cent on carbonated drinks
- 100 per cent on tobacco products
- 100 per cent on energy drinks
- 100 per cent on electronic smoking devices
- 100 per cent on liquids used in such devices and tools
- 50 per cent on any product with added sugar or other sweeteners.
How shall the excise tax be calculated?
The excise tax shall be calculated in the manner provided by the Cabinet Decision No. 52 of 2019. But prior to this, the business has to register for the tax under Excise Tax Law, if the businesses are engaged in any of the following activity.
- Importing of excise goods;
- Production of excise goods;
- Releasing goods from an excise tax designated zone;
- Stockpiler of excise goods, in certain cases; and
- Warehouse keepers, in certain cases
Therefore, all the importers, producers and warehouse keepers of the goods have to register with the Federal TaxAuthority as soon as possible since the Cabinet Decisions No. 52 and 55 of 2019 have confirmed that with effect from 1 December 2019 Excise Tax will be expanded to cover sweetened drinks, electronic smoking devices and tobacco products. Non-compliance will subject the concerned parties to a fine.
Stockpiler means those business, which holds excise goods on which taxes are not paid and these goods are available for free circulation in the market of U.A.E. Many supermarket and retailers fall under this category.
What are the methods of calculation of tax?
The method of calculation of tax is as per the manner provided by the Cabinet Decision No. 52 of 2019. It provides that any goods on which tax is already paid shall not be taxed again, merely because it is mixed with a different good at the time of the sale.
If a particular good is compatible with more than one excise goods category, then it will be put categorized as the excise good with the highest rate.
The Cabinet Decision further provides that the excise price on which tax will be calculated, shall be either the price of good as decided by the authorities or the retail sale price of the good, whichever is higher.
Lastly, in case if the excise price is retail sale price then in that case, the value of tax shall be 1/3rdof the price of good, if the excise tax is 50% and ½ in case excise tax is 100%.
The excise tax regime administered by the U.A.E Federal Tax Authority, as at present stands expanded to cover Sweetened Drinks, Electronic Smoking Devices and the Liquids used in such Devices and Tools, with effect from the 1stof December 2019, in addition to Carbonated Goods, Energy Drinks and Tobacco and tobacco products, which were being taxed since 2017. Upon a closer look to the Excise Tax law and its Executive Regulations, it is discernible that this has been enacted for the welfare of general public. The government is taxing these specific products to deter consumption of such goods due to their harmful effects for general public and the environment.
Adv. Deepak Azad
Corporate & Commercial – Incorporation of Companies: Corporate Restructuring |
Project and Infrastructure – Construction | Energy – Oil and Gas