UAE records high compliance with tobacco and fizzy drinks tax

Excise levy took effect last October to boost state revenues and public health

Tobacco, carbonated and energy drinks are subject to rates of 50 to 100 per cent under the UAE's Excise Tax that was introduced last October. Pawan Singh / The National

Almost all companies registered to pay the UAE’s new excise duty on cigarettes and fizzy drinks have complied with the rules a year after it was introduced, with positive implications for public health, the Federal Tax Authority said on Saturday.

The level of compliance with the new law, measured by the number of tax returns submitted to the government, reached 97.7 per cent of all 715 registered businesses, the FTA said in a statement.

“These positive outcomes clearly indicate we have begun to achieve the main objectives of excise tax – most notable of which is building a safe and healthy society by reducing the consumption of goods that harm the health of community members and affect the quality of the environment,” said the FTA’s director general Khalid Al Bustani. “The system has also helped increase financial resources to support expansion of government services to the public.”

Mr Al Bustani urged tobacco companies to comply with the excise tax regulations to avoid penalties or a temporary ban on the sale of their products within the UAE.

Like other GCC countries, the UAE introduced taxes in the past year as a way of increasing state revenues following a three-year oil price slump. In January, it introduced a 5 per cent VAT on certain goods and services, along with Saudi Arabia, while Bahrain and other GCC countries plan to introduce VAT from 2019.

The introduction of VAT in the UAE is expected to raise up to 1.7 per cent of GDP, or up to Dh24 billion per year, Moody’s said in a report in September.

The UAE’s excise tax came into effect on October 1, 2017, when a 50 per cent levy was imposed on soft drinks and a 100 per cent levy on tobacco products and energy drinks. As well as boosting revenues, the UAE is also working to improve public health as instances of diabetes, cancer and heart disease are high in the country, according to the World Health Organisation.

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Mr Al Bustani cited a report by WHO’s Regional Office for the Eastern Mediterranean, which he said praised the UAE’s anti-smoking efforts through its imposition of the tax.

“The statistics indicate that the value of the country’s foreign trade of tobacco and its products decreased significantly over the course of this year – a testament to [the UAE’s] policies to reduce consumption of goods that adversely affect human health and the environment,” the director general said.

The high level of compliance was due to the ease of the tax return procedures and flexible payment mechanisms, he said. The FTA has launched more than 60 guides covering legislative and practical aspects of UAE tax regulations, to illustrate what products and services are taxed and how taxpayers can submit returns.

The forthcoming tax period will witness more positive results as several new regulatory mechanisms and systems are due to be implemented, Mr Al Bustani added.

The most significant of these mechanisms is the Digital Tax Stamp Scheme for Tobacco Products, to be enforced at the start of 2019, he said. This is intended to establish a framework for authorities to help them streamline tax collection and combat tax evasion.

The UAE will apply a digital tracking system for the labelling of tobacco products with their price and safety warnings under the new scheme. The new system will work by means of a stamp or digital seal that will be installed on tobacco product packaging. This stamp will then be registered in the FTA’s database and read by special devices to ensure the tax on the products is paid.