The UAE has set a standard on the consumption of harmful products not only to discourage consumption but also promote healthy living. Taxes have been levied on certain harmful products like tobacco, alcohol, electronic vapes and energy drinks among others in a bid to promote better living standards.

 Taxation to Avoid Consumption of Harmful Products

Tobacco use and excessive alcohol consumption in countries worldwide contribute significantly to the global prevalence of diseases and mishaps. As a result, it causes exorbitant medical expenses.

It is suggested that a tax, called excise tax, can develop healthy habits by reducing the consumption of these products.

Origin of Excise Tax in the UAE

In an effort to diversify non-oil revenues, the Gulf Cooperation Council (GCC) countries had signed multilateral agreements to introduce value-added and excise taxes. This agreement establishes the principles for the application of these taxes and the framework for the supply of goods and services between countries.

Taking into account the fact that the GCC is an integrated economic zone, and the movement of goods and services is very rapid, limited, and essential. The excise tax was introduced as the first of these two taxes. The first implementation countries are Saudi Arabia (June 2017), UAE (October 2017), Bahrain (January 2018), Qatar (January 2019), and Oman (June 2019).

The United Arab Emirates has exempted its citizens from paying any income taxes. However, VAT (Value Added Tax) is charged on consumption or use of goods and services. At the point of sale, there is a 5% VAT charge. Businesses are responsible for collecting and remitting taxes on behalf of the government.

Another tariff called Excise tax is imposed upon the citizens of the UAE. These taxes are imposed on some commodities known to be damaging to human health or the environment. The UAE government had implemented this means of protecting its citizens and environment from the injurious consequences of harmful products.

What is Excise tax?

The UAE government introduced the excise tax on October 1, 2017. Excise tax is an indirect tax charged on certain goods usually harmful to human health or the environment. Because of such nature, these products are also referred to as 'excise goods.' A product is considered an excise good based on the following definitions. These definitions are as follows:

• Carbonated drinks- This category includes all carbonated beverages except unflavoured carbonated water. Any consistency, powder, gel, or extract intended to manufacture carbonated beverages is also considered a carbonated beverage.
• Energy drinks- includes all beverages sold or marketed as energy drinks containing stimulants that provide mental and physical stimulation, including caffeine, taurine, ginseng, and guarana. This also includes any substance that has the alike or similar effect as the aforementioned substances. Additionally, any concentration, powder, gel, or extract is considered an energy drink and comes under the same category.
• Tobacco and Tobacco Products- includes all goods listed in Annex 24 of the GCC Common Customs Tariff.

A new amendment was made in this policy which came into effect on December 1, 2019. This change included various other products covered under the ambit of excise goods. These products were namely:

• Electronic smoking devices and tools- For the purposes of Article 2 of the Cabinet Decision No. 52 of 2019 on Excise Goods, Excise Tax Rates and the Methods of Calculating the Excise Price was ruled on August 4, 2019. Electronic devices and smoking implements includes all electronic smoking devices and tools, etc., containing nicotine or tobacco, depending on the customs code to be determined by the Minister's decision.
• Liquids used in such devices and tools- Liquid solutions used in electronic smoking devices were also taxed under Article 2. Apparatus and tools include any fluid used in such machines and tools, etc., whether it contains nicotine according to the customs code, needed to determine by the Minister's decision.
• Sweetened drinks- For the purposes of Article 2 of this decision, sweetened beverage means products with added sugar or other sweeteners. In one of the following formats:

1. ready-to-drink items as a beverage.
2. Concentrates, powders, gels, extracts, or any form that can be converted into sweet drinks.

 Rates of excise tax

For the purposes of Article 3 of the Decree-Law, tax shall apply to the Excise Goods stipulated under Article 2 of the Decision pursuant to the following rates:

 

Excise Good	Tax Rate
Tobacco and tobacco products	100%
Liquids used in electronic smoking devices and tools	100%
Electronic smoking devices and tools	100%
Carbonated drinks	50%
Energy drinks	100%
Sweetened drinks	50%

 Purpose of Excise Tax

The UAE Government had imposed the tax to reduce consumption of unhealthy and harmful goods while increasing government revenues that can be spent on valuable public services. This entire process involves four steps:

• Factory or importer pays the applicable excise tax on goods to the Federal Tax Authority.
• Retailer buys from a wholesaler or directly from factory or importer, including the cost of excise.
• Excisable goods are stocked on shelves, with duty included in the price.
• Consumer pays the higher price at the end for excisable goods.

It was even stated that the tax would raise the price of a packet of 20 Marlboro Gold cigarettes from 11 AED (£2.32) to 22 AED (£4.64).

 

Businesses Required to Register for Excise Tax

Following UAE Federal Decree-Law No. 7 of 2017 on Excise Tax registration for payment of excise tax is the responsibility of all enterprises engaged in the following businesses:

• The import of excise goods into the UAE
• Production of consumer goods for consumption in the UAE
• Warehouse storage of excise goods in UAE in some instances
• The person responsible for supervising a warehouse or designated area, i.e., the warehouse owner or housekeeper.

There are no consumption tax registration standards. Therefore, legal entities wishing to engage in the activities listed above must register and report on the payment of excise tax.

Exceptions to Excise Tax Registration

People who do not regularly import goods subject to consumption tax do not need to register for this tax. They must prove that they do not import excise goods more than once every six months or four times in 24 months.

Conclusion

Excise tax is a powerful tool to reduce tobacco consumption, excessive alcohol consumption, and consumption of sweetened beverages. Demand for these products is price-sensitive, governments that have raised or imposed taxes have reduced consumption, and higher taxes on tobacco and alcohol have improved health outcomes.

Even the WHO claimed that specific excise taxes (those based on some measure of quantity) have many advantages over ad valorem excises (those based on value or price).

Hence the Annual Review of Public Health concludes that the potential of these taxes to reduce consumption and save lives remains significantly high.

Pic - ECOVIS

By Ananya Gupta

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