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What is the Excise Tax?

Excise tax refers to the tax that applies to certain products at the time of purchase. These legislated taxes are international, imposed by the national government, and on specific goods or services including tobacco, alcohol, and fuel. Unlike international taxes that are imposed across borders, the excise taxes are applicable within the confines of a country and imposed by the national government. A federal excise tax typically applies to airline tickets, fuel sales, tobacco, among others.
The taxes are normally collected from high up in the chain of businesses and customers are left out of the loop. The merchants at the top pay the excise taxes to the wholesalers, and pass on this cost to the customer by adding to the price of the goods. In other cases, customers directly pay the excise taxes. These usually include property taxes and taxes on retirement accounts.

How Excise Tax Works

Here is how an excise tax works. The power to impose the excise taxes is with the local governments and the federal state. For these authorities, the main revenue generator is income tax but excise taxes also play a considerable role in bringing in revenue. These taxes are applicable to businesses separate from other taxes and must be paid unless merchants are granted credits or deductions.

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Excise Tax is the responsibility of any person engaged in:

• The import of excise goods into the UAE
• The production of excise goods where they are released for consumption in the UAE
• The stockpiling of excise goods in the UAE in certain cases
• The release of excise goods from a designated zone

Stockpilers refer to those businesses that store excise goods for which the tax has not been paid. These excise goods are meant to circulate freely in UAE, be sold to UAE citizens, and the businesses hold Excess Excise Goods. According to the method prescribed by the FTA to calculate “Excess Excise Goods,” the majority of the retailers and markets in UAE fall under the category.
All authorities that are involved in or intend to engage in the activities mentioned above must register for excise taxes, and a delay in registration can result in negative consequences, like fines.

Here is what those required to register for excise tax are supposed to do:
1. Classify their goods. This includes the identification of excise goods that they are importing, producing, releasing, stockpiling, or safekeeping.
2. Identify whether they fall into the category by noting the primary conditions for registration as a Taxable person. If it applies, they also have to identify the conditions for being labeled as a Tax Warehouse Keeper and Tax Warehouse.
3. Calculate any additional excise tax that applies during the transitional period.
4. Consider and calculate the impact of the taxing across their supply chain.
5. Valuate the excise tax.
6. ERP and process readiness

The process of excise payment along the production to purchase chain is given below:
  • The factory producing excisable goods, or the importer bringing in these goods registers with the FTA and pays the necessary excise tax on the goods.
  • The distributor or wholesaler delivers these duty-paid goods to the retailers who buy these goods at a price that includes the cost of the excise tax.
  • The excise goods are shelved at a price that includes the excise tax applicable.

  • The consumers purchase the excise goods at a price that includes the tax, so they pay a greater price for the excisable goods.

Related Article of Excise in UAE


What is excise tax in UAE?

The UAE government prioritizes citizen protection, and as a means of ensuring this, on December 1st, 2019, it imposed the excise duty on electronic smoking devices and relevant liquids and certain sweetened beverages. Excise tax Dubai on other products has been levied since October 1st, 2017. This indirect tax is imposed on certain goods being sold in the UAE as a means of reducing the consumption of these products because they are considered harmful. Generating revenue in this way also benefits other public sectors to improve resources for the citizens. Goods on which excise taxes are applicable include carbonated drinks, energy drinks, tobacco, and its products. The following definitions are used when identifying excise goods:

Carbonated drinks
Energy drinks
Tobacco and related products
Electronic smoking devices, related tools, and sweetened drinks.
Carbonated drinks

Any aerated beverage, except for aerated unflavored water, counts as a carbonated drink. Other carbonated products include concentrations, gels, powders, and extracts, which are to be used in aerated beverages.

Energy drinks

Beverages classified as energy drinks include all drinks marketed and purchased as energy drinks, and that contain stimulants for both physical and mental stimulation. Caffeine, ginseng, and taurine, for example, are classified as energy drinks in the UAE.

Tobacco and related products
Electronic smoking devices, related tools, and sweetened drinks.

From December 2019, a 100% excise tax is applied on electronic smoking equipment, devices, and liquids used in these, and 50%excise tax is levied on Sugar-Sweetened Beverages (SSBs). In addition to this, the Federal Tax Authority (FTA) also altered the registration process and obligated businesses concerned with the production of excise goods to register their products into the new FTA system. The UAE Cabinet General Secretariat, in his official statement, declared that these taxes are imposed so that a healthier lifestyle can be promoted through safe consumption, and chronic diseases associated with excise goods can be prevented

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