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Fri 17 Jan 2020 01:15 AM

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New Saudi tax on sugary drinks set to have 'limited impact' - KPMG

KPMG exec says 50% excise tax on sugary drinks will only have a short-term impact on the supply chain in Saudi Arabia

New Saudi tax on sugary drinks set to have 'limited impact' - KPMG

The imposition of 50 percent excise tax on sugary drinks will only have a short-term impact on the supply chain including manufacturers, wholesalers, retailers and the hospitality industry, according to KPMG.

With effect from December 1, excise tax in the kingdom was extended to include certain types of manufactured juices and beverages.

Nick Soverall, head of indirect tax at KPMG in Saudi Arabia, said: “The new tax will affect consumption and production in the short- to medium-term due to the lower consumption of sweetened beverages,” adding that effects on customer behaviour are expected to stabilise over time, as manufacturers may switch production to different beverages.

Total taxes on goods and services, as projected by the Saudi Arabia’s budget 2020, stand at SR142 billion, 0.8 percent higher than the 2019 estimates, supported by expected economic recovery and the implementation of the tax.

KPMG said it expects some of the entities specialised in the production and distribution of sugary drinks may face difficulties in classifying products for excise purposes.

A sweetened beverage has been classified by the General Authority of Zakat and Tax (GAZT) as “any product containing any type of sugar or other sweeteners produced for the purposes of drinking as a beverage whether ready for drinking, or as concentrate powders, gel extracts or any form that can be converted into a drink’ with the exception of certain 100 percent fruit or vegetable juices and milk and dairy products”.

Soverall said: "As the definition is kept rather wide and generic, there are some potential issues faced by the industry in terms of product classification for tax excise purposes."

GAZT is expected to publish a list of products that will be included in the excise regime to provide more clarity, he added.

Although there is a possibility of investment in the beverages sector being impacted in the short term, the KPMG executive said investment levels will remain in line with normal market growth over time.

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