Understanding Excise Tax in the GCC Countries: A Simple Guide for Businesses

                                                                                                 LISTEN TO THIS ARTICLE

Excise tax, often referred to as the "sin tax," is a levy imposed on certain goods considered harmful or undesirable. This tax aims to discourage consumption of products like tobacco, sugary beverages, and energy drinks, promoting public health and offsetting associated societal costs. In this article, we will delve into the basics of excise tax, its application across the Gulf Cooperation Council (GCC), and how businesses can navigate through its complexities. 

What is Excise Tax? 

Excise tax is a specific duty levied on goods produced domestically, imported, or stockpiled for consumption within a country. Excise tax is often dubbed as the "sin tax" due to its targeting of products deemed harmful to public health or socially undesirable.  

Excise Goods  

The goods subject to excise tax vary among countries but commonly include tobacco, sweetened drinks, and energy drinks. For instance, sweetened drinks are described as beverages containing added sugars or sweeteners. Criteria for classification may include sugar content per volume or weight, typically expressed as grams per liter or percentage of total volume. Certain products are excluded from being classified as sweetened drinks, such as beverages containing at least 75% milk, baby formula, baby food, and drinks intended for medical use. 

Excise Tax Rates 

Excise tax rates vary across the GCC countries but generally apply to similar categories of goods. Energy drinks are often subject to excise tax due to their high caffeine and sugar content. Identification factors may include marketing materials, product labeling, and references to performance enhancement. 

In the UAE, tobacco products, energy drinks, electronic smoking devices, and liquids used in them, are taxed at a higher rate of 100%. Carbonated drinks or any product with added sugar or other sweeteners are taxed at 50%. 

Valuation of Excise Goods 

Excise tax is levied on the excise price. Though each country may have distinct rules of valuation, the UAE excise tax law states that the excise price is the higher of the price stated in a list published by the FTA or the designated retail selling price. Valuation of excisable products is often a complex exercise and must be done in consultation with experts.  

Designated Zones under Excise Tax 

Designated Zones (DZs) offer tax benefits for businesses, allowing them to defer excise tax payments until goods exit the DZ. Any warehouse can be converted into an excise DZ to take advantage of these incentives. Companies in DZ are eligible to claim excise refunds in case of normal loss or lost and damaged goods. Thus, producers/ importers of excise goods must analyze the benefits of establishing their units in the DZ viz-a-viz the domestic area.  

Registration and Compliance 

Businesses involved in importing, producing, or stockpiling excise goods are required to register for excise tax including a person responsible for overseeing an excise warehouse or designated zone. There is no minimum threshold to register for excise tax purposes. Once registered, businesses must file excise tax returns periodically.  

Conclusion 

Excise tax in the GCC serves as a mechanism to deter the consumption of harmful goods and generate revenue for public services. While consumers face higher prices for excise goods, businesses must comply with registration and filing requirements. By understanding excise tax and its implications, both consumers and businesses can contribute to a healthier society and a more robust economy. 

Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice. 

Click here to buy EXCISE TAX PRE-RECORDED WORKSHOP by Gaurav Shivhare.