The UAE has been implementing excise tax on certain goods since October 2017. Excise tax UAE is a form of indirect tax levied on the production, import, or sale of specific goods. The objective of the excise tax is to reduce the consumption of harmful products, such as tobacco, energy drinks, and carbonated beverages while generating revenue for the government. This article will discuss the excise tax rates in UAE and the methods of calculating excise prices.
Rates of Excise Tax in the UAE
The UAE imposes an excise tax on a range of goods and services, including tobacco, energy drinks, and sugary drinks. The excise tax rates in the UAE are as follows:
- Tobacco Products: The excise tax rate on tobacco products is 100%. This means that the excise tax is equivalent to the retail price of the product.
- Energy Drinks: The excise tax rate on energy drinks is 100%. This means that the excise tax is comparable to the retail cost of the product.
- Carbonated Drinks: The excise tax rate on carbonated drinks is 50%. This means that the excise tax is equal to 50% of the retail price of the product.
The excise tax UAE rates are among the highest in the world, reflecting the government's commitment to reducing the consumption of harmful products.
Methods of Calculating Excise Prices in UAE
There are two methods of calculating excise price in UAE: specific and ad valorem. The specific method applies a fixed tax rate per unit of a particular product, while the ad valorem method applies a percentage tax rate to the value of the product.
- Specific Method
The specific method of calculating excise price in the UAE is based on the quantity of a particular product. For example, the excise tax on cigarettes is AED 0.4 per cigarette, while the excise tax on energy drinks is AED 0.1 per milliliter. The specific method is easy to administer and provides certainty for businesses and consumers regarding the amount of tax payable.
- Ad Valorem Method
The ad valorem method of calculating excise price in UAE is based on the value of the product. For example, the excise tax on luxury cars is 50% of the retail price, while the excise tax on jewelry is 5% of the retail price. The ad valorem method is more complex than the specific method and requires a valuation of the product to determine the taxable amount.
Example Calculation of Excise Price
To better understand the methods used to calculate the excise price, let's consider the following example:
- For instance, if a pack of cigarettes costs AED 20 in a retail store in the UAE. Using the specific tax method, the excise price of the pack of cigarettes is AED 20 + AED 8 = AED 28.
- Infer that an energy drink amounts to AED 10 in a retail store in the UAE. Taking up the ad valorem tax method, the excise cost of the energy drink is AED 10 + 100% x AED 10 = AED 20.
- Whereas, a carbonated drink costs AED 5 in a retail store in the UAE. Using the ad valorem tax scenario, the excise cost of the carbonated drink is AED 5 + 50% x AED 5 = AED 7.5.
Challenges of Implementing Excise Tax in UAE
- One of the main challenges of implementing excise tax is the difficulty in enforcing the tax, particularly regarding cross-border transactions.
- Another challenge is the potential impact on businesses, particularly small and medium-sized enterprises (SMEs). SMEs may struggle to absorb the additional costs of the excise tax, which could lead to higher prices for consumers or lower profits for businesses.
Choose the UAE Tax Consultants
It is imperative for taxable persons to seek the services of top UAE tax consultants to seamlessly implement tax standards and to stay compliant to tax regulations to which noncompliance accrues hefty fines upon taxable persons. Thus, contact us today and we shall be happy to assist you.