You have a friend who smokes a pack of cigarettes a day.  And those cigarettes are taking a massive, potentially dangerous toll on his health.  

He knows it, too. He’s been trying to stop but can’t seem to. You’ve done your best to help him.  But nothing seems to work.

Sometimes you think, “What if there was another way to help him?”

Well, now there is.  The UAE government implemented an excise tax across the country in 2017 to do just that.

What’s an excise tax?  It’s an indirect “sin tax,” so to speak.  The government places it on products that harm people’s health and the overall environment. Cigarettes being one of those products.  But, that’s not all.

Energy drinks, carbonated drinks and other tobacco products are also subject to an excise tax.  

The goal?  To limit consumption of harmful substances by making them too expensive to regularly purchase.  The potential result? A much healthier, prosperous society that isn’t derailed by products that dramatically lessen UAE residents’ quality of life.

How Does Excise Tax Affect You?

The excise tax affects you as a consumer, as highlighted above.  But how does it affect you as an accountant? If you “keep the books” for a business that sells these excised products, take note.  

Here’s what you need to handle excise tax obligations, in addition to your other responsibilities.

  • Read the Federal Decree Law No. 7 of 2017 right now to see if your business needs to register with the FTA.  This will tell you whether your business is required to file and pay excise tax.
  • For your convenience, we’ve provided a short list to make it easier.  If your business engages in the following activities, you must be registered and file:
    • If your business imports excise goods into the UAE.
    • Your business produces excise goods for consumption in the UAE.   
    • Stockpiling of excise goods in the UAE, in particular cases.
    • If your business oversees an excise warehouse or designated zone (i.e., a warehouse keeper.)   

Lucky for you, the FTA’s regulations on excised goods are easy to follow.  However, it’s your business’s responsibility to make sure it stays compliant.  

And pay attention: The FTA has the authority to conduct audits of taxable corporations, just like with VAT tax filing.  Similarly, FTA can impose fines and other measures if your business does not comply with the excise tax.

What Goods are (Exactly) Excise-Taxed?

Now you understand the specific businesses that need to register and file excise taxes with the FTA.  But you, as the detail-oriented accountant you are, might be wondering what exact excised goods are included in these categories?  We’re talking a lot of different products with a wide range.

So here’s how the FTA classifies and defines energy drinks, carbonated drinks and tobacco:

  • Carbonated drinks – This includes any aerated beverage except for unflavoured aerated water.  Also considered to be carbonated drinks include any concentrations, powder, gel, or extracts intended to be made into a carbonated beverage are also included.   
  • Energy drinks – If a beverage is marketed or sold as an energy drink, it’s excisable.  That means if the drink contains stimulants such as caffeine, taurine, ginseng or guarana.  And if it’s intended to deliver mental and physical stimulation. Believe it or not, it also includes any substance that provides an identical or similar effect to the substances above.  Like carbonated drinks, any concentration, powder, gel or extracts produced to provide increased energy is also included.
  • Tobacco and tobacco products include all items listed within Schedule 24 of the GCC Common Customs Tariff (need to find more info).  Recently, shisha was deemed an excise-taxable tobacco product starting in Q4 2019.

Where Does The Tax Money Go?

The UAE Government plans on spending the money raised through excise taxes on beneficial public programs which promote healthy activity and consumption.

Are you tired of seeing your fellow UAE residents suffer?  Suffer from abusing specific products that harm their health, and the environment?  

How Does Excise Tax Work?

The next time you go to purchase one of these excised products, remember this chart:

This is how you end up paying more for “sinful” goods.  The process starts with the FTA-registered factory or importer who pays the FTA for excise taxes on these goods.  

That extra cost is passed on to you “indirectly.”  In other words, you have the choice not to consume these goods.  But if you do, you better be ready to pay the tax.

How Much Is The Excise Tax on Targeted Items?

  • 50% on Carbonated Drinks
  • 100% on Tobacco Products
  • 100% on Energy Drinks

So that means that if you want a can of soda (which initially costs UAE 1.00) it now costs UAE 1.50 with the tax.

In the same way, an energy drink usually costing UAE 2.50 is now UAE 5.00 with the tax.

Lastly, if you bought a pack of cigarettes for UAE 7.00, the new price would balloon to UAE 14.00

How Much Has The Excise Tax Raised So Far?

Reports late last year showed a strong, positive reception to the newer excise tax.  The FTA reported an almost 98% compliance rate for businesses.

They expect the tax to raise UAE 7 billion for the UAE government.  

And each tobacco product will have a digital tax stamp, beginning this year.  This will establish the FTA in tracking excise tax compliance, collecting taxes, and upholding the rights and duties of UAE’s taxable persons, according to Khalid Ali Al Bustani, director general at FTA.

What Are You Waiting For?  Register Today!

Don’t be one of a tiny minority who doesn’t register and get into legal trouble.  It’s simple and easy. Just sign up and create an account for your business.  Then, head to the e-services section of the FTA to get registered.  

There you’ll sign up and create an account.  To learn more about excise tax registration, please check out Excise tax registration user guide (PDF, 500 KB)

Need more assistance navigating the tax registration and application process?  Leave a comment below or send contact us for a free consultation.