Taxation allows governments to correct certain behaviours that are detrimental to society and which cannot be left to the market to regulate. Excise taxes on products that are harmful to human health are a good example of this.
Excise tax is a form of indirect tax levied on specific goods, which are harmful to human health or the environment. Such goods include carbonated drinks, energy drinks and tobacco products.
What is excise tax?
Excise tax is a form of indirect tax levied on specific goods. These goods are typically those that are harmful to human health or the environment.
These goods are referred to as “excise goods”. When considering whether a product is an excise good, the following definitions apply:
Tobacco and tobacco products include all items listed within Schedule 24 of the GCC Common Customs Tariff.
The UAE Government is levying excise tax to reduce consumption of unhealthy and harmful commodities while also raising revenues for the government that can be spent on beneficial public services.
Rate of excise tax
The rates of excise tax in the UAE will be:
All businesses that import, produce or store excisable goods must consider if they must be registered with Federal Tax Authority (FTA) and are accountable for filing and paying excise tax. It is important to understand any potential obligations you or your business may have under the UAE Federal Decree Law No. 7 of 2017 on Excise Tax.
FTA is committed to providing extensive support and guidance to assist with this; however, the responsibility lies with the business to make sure that any required compliance obligations are fulfilled. FTA has the power to conduct audits of taxable corporates and subsequently impose penal measures on those that do not comply with the law.
Registering for excise tax is the responsibility of any business engaged in:
The UAE is considering levying Value Added Tax (VAT) from January 2018. The rate of VAT will be 5 per cent.
VAT will provide the UAE with a new source of income which will be continued to be utilised to provide high-quality public services. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
VAT, as a general consumption tax, will apply to the majority of transactions in goods and services. A limited number of exemptions may be granted. As a result, the cost of living is likely to increase slightly, but this will vary depending on an individual’s lifestyle and spending behaviour. If an individual spends mainly on those things which are relieved from VAT, he is unlikely to see any significant increase.
The government will include rules that require businesses to be clear about how much VAT an individual is required to pay for each transaction. Based on this information, individuals can decide whether to buy something.
Businesses will be responsible for carefully documenting their business income, costs and associated VAT charges. Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) will be required to register for VAT. Businesses that do not think that they should be VAT registered should maintain their financial records in any event, in case the ministry needs to establish whether they should be registered.
Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods/services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.
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