UAE likely to introduce excise tax in 2017, says expert

The taxes are part of the GCC unified treaties for value-added tax (VAT) and Excise Tax, which were approved in June last year.

In its Fiscal Balance Program 2020 report, published in December, Saudi Arabia said it will impose a 50 percent tax on soft drinks and a 100 percent tax on tobacco and energy drinks from Q2 2017.

Nadine Bassil, PwC Indirect Tax, Director, told Arabian Business the excise tax is expected to be introduced in the UAE this year.

“The rates are yet to be determined, but are anticipated to vary between 50 percent and 100 percent on the excisable goods,” she said.

The UAE Ministry of Finance declined to comment on tax rates, list of taxable goods and implementation date.

However, the ministry will hold two workshops – one each in Abu Dhabi and Dubai – in May that will try to explain to businesses involved in the import, production and sale of tobacco products, carbonated drinks and energy drinks the rules of the new excise tax system.

In a report, issued last year, the US-UAE Business Council said GCC states have turned to excise taxes because they double as a tool to achieve social change.

All GCC states have high levels of smoking and residents suffer from high rates of obesity, diabetes and associated illnesses, it said, adding excise taxes on tobacco and sugary beverages will incentivise citizens to adopt healthier lifestyles as well as procure revenue for state coffers.

Bassil said the introduction of excise tax will certainly impact the pricing of the excisable goods.

“The impact on businesses and the market will depend on the design features of the excise tax system, particularly the tax rates applied, the tax base and other factors.”

Asked if companies will absorb the cost or pass it on to the customers, Bassil said businesses will need to look at the potential impact of the excise tax on consumption/demand and decide on their pricing strategy, especially for businesses operating in particularly competitive industries.