Excise Tax in UAE – Scope Expansion

In UAE, tobacco and tobacco products, Energy Drinks and Carbonated drinks are subject to Excise tax and the nation has now decided to levy excise tax on all e-cigarettes, e-liquids and sweetened drinks with effect from December 1, 2019. With this introduction a substantial change to businesses that import, manufacture or trade these products is expected. This article intends to explain the new scope of excise tax and what businesses should do.

Healthy lifestyle has always been a top priority for the UAE government and with this initiative, control over diseases arising from the consumption of harmful goods can be expected. According to the Cabinet General Secretariat “The decision comes to support the UAE government’s efforts to enhance public health and prevent chronic diseases directly linked to sugar and tobacco consumption.”

New Products that will be levied excise tax w.e.f. December 1, 2019

• Electronic smoking devices and tools and
• Sweetened drinks

ELECTRONIC SMOKING DEVICES AND TOOLS

Electronic smoking devices and tools shall include all electronic smoking devices and tools and the like, whether or not containing nicotine or tobacco. which would be classified on import under Customs HS codes:- 85437031, 85437032, 85437039

All liquid used in electronic smoking devices and tools used in such devices even if they contain nicotine or not will be levied tax under Customs HS codes:-  38249999.

Liquids used in electronic smoking devices and tools will be charged 100 percent tax.

SWEETENED DRINKS

Sweetened drinks that come under excise tax include any product to which a source of sugar or sweetener is added and is produced either as:

• A ready to drink beverage or
• Concentrates, powders, gel, extracts or any other similar product that can be made into a sweetened drink

Source of sugar includes white sugar, soft white sugar, powdered sugar, soft brown sugar and glucose syrup. Whereas sweeteners include saccharin and its salts, aspartame, sorbitol, and neotame.

Sweetened drinks that are excluded from Excise Tax

• Ready to drink beverages that contain at least 75% milk or its substitutes
• Baby formula, follow up formula or baby food
• Handling of Foods for Special Medical Purposes
• consumed for special dietary needs
• Beverages which include alcohol

What Business Needs to do

The Federal Decree-Law No. 7 of 2017 on Excise Tax stipulates that businesses/ persons that are engaged in any of the below activities must register for tax;

• Importing of excise goods;
• Production of excise goods;
• Releasing goods from an excise tax designated zone;
• Stockpilers of excise goods, in certain cases; and
• Warehouse keepers, in certain cases.

Hence accordingly Importers, producers, stockpilers warehouse keepers, etc. of electronic smoking devices, liquids used in such devices and sweetened drinks need to register for excise tax system as soon as possible. Failure in registering within the specified time period can lead to fines and various other obstacles.

Stockpilers are that businesses that holds excise stock on which duty is not paid and it’s available for free circulation in UAE and intends to be sold in UAE and holds “Excess excise goods”. FTA has a prescribed method to calculate excess excise goods and their valuation. Most of the supermarkets and retailers may fall under this category.

A step-by-step guide for businesses concerned

• Classification of Goods – Identify the Excise Goods
• Identify the primary conditions for registration as an Excise Tax Taxable Person and if applicable, as a Tax Warehouse and Tax Warehouse Keeper
• Identify the tax trigger points and the tax liability for flow/transaction after going through the supply chain flows/transactions with regard to the Excise Goods
• If there is any additional excise tax during the transitional period, this must be calculated.
• Evaluate the pricing impact across the supply chain
• Valuation for Excise tax
• ERP and process readiness

Jay Krishnan
Partner
jk@hlbhamt.com

Harish E
Manager, Tax
harish@hlbhamt.com