It is vital to identify the products that are subject to excise duty and categorise them correctly
By Mahar Afzal/Compliance Corner
In our last article, we explored how excise tax is utilised to reduce the consumption of harmful products. Additionally, we clarified that excise duty is a consumption tax and is levied when goods are available for free circulation to the public in the UAE.
In our general article about excise duty, we highlighted two crucial aspects essential for its implementation. Firstly, it is vital to identify the products that are subject to excise duty and categorise them correctly to determine the appropriate excise rate. Secondly, we emphasised the significance of determining the base price to ensure that excise duty is applied correctly. This article delves into a detailed examination of the products subject to excise duty and provides insights on identifying and categorising goods within their respective excisable categories.
Not all products are subject to excise tax; only specific harmful items like carbonated drinks, energy drinks, sweetened beverages, tobacco products, smoking devices, and the liquids used in them — referred to as ‘excisable goods’ — are liable for excise duty at 50 per cent or 100 per cent of the excise price.
Tobacco refers to the plant, the leaves of which are dried and processed for smoking, chewing, or snuffing. Tobacco products encompass a wide range of items derived from tobacco, including cigarettes, cigars, pipe tobacco, snuff, chewing tobacco, and various forms of smokeless tobacco.
Smoking devices are tools or apparatus used to smoke tobacco or other substances. Examples of smoking devices include pipes, hookahs, and electronic cigarettes (e-cigarettes or vapes); and liquid used in the smoking devices typically refer to substances used in electronic cigarettes (e-cigarettes or vapes) to produce vapor for inhalation.
For excise tax purposes, the term “carbonated drinks” encompasses all aerated beverages except unflavoured aerated water (sparkling water). This definition also encompasses any concentrates, powders, gels, or extracts meant to be transformed into an aerated beverage. An aerated beverage contains carbon dioxide gas, which creates bubbles and gives the beverage its fizziness. Common examples of carbonated drinks include carbonated soft drinks, sodas etc.
Energy drinks refer to beverages that may contain stimulant substances designed to offer mental and physical stimulation. These substances can comprise caffeine, taurine, ginseng, guarana, and potentially other ingredients. Energy drinks encompass not only the liquid beverage but also any concentrates, powders, gels, or extracts intended for the preparation of an energy drink. The common examples of energy drink are Red Bull, Monster Energy, Rockstar Energy etc.
Sweetened beverages include products to which sugar or a sweetener is added. These products can take the form of ready-to-drink beverages meant for immediate consumption or concentrates, powders, gels, extracts, or any other form that can be converted into a sweetened drink. The common examples include but are not limited to white sugar, soft white sugar, powdered sugar, soft brown sugar, glucose syrup and sweeteners like saccharin and its salts, aspartame, sorbitol, neotame and others. Sweetened drinks do not include ready-to-drink beverages with at least 75 per cent milk and milk substitutes; baby formula, follow-up formula, or baby food; beverages for special dietary needs; and beverages for medical uses.
To determine a product that is being marketed as an energy drink, carbonated drinks, or sweetened beverage, various factors can be considered. These include the type of marketing materials used, the product’s labeling and packaging, descriptions of the product in marketing materials like websites or catalogs, references to mental or physical benefits from consuming the product and mentions of increased energy levels. Conversely, signs that a product may not be marketed as an energy drink, carbonated drinks, or sweetened beverage could include focusing only on health benefits like hydration or vitamin content and a lack of emphasis on the benefits of consumption in the packaging or marketing materials beyond taste.
Where the concentrate intended to be transformed into a sweetened beverage at the retail point has already been taxed in the UAE, the resulting drink made from that concentrate at the retail sale point is not classified as an excise good for tax application purposes. Alcohol and sparking water are not considered carbonated drinks, energy drinks and sweetened beverage for excise tax purposes.
Any product that fits the criteria for a sweetened drink but is also carbonated will be categorised as a carbonated beverage. If a product meets the criteria for multiple excise goods categories, it will be classified as the excise good subject to the highest tax rate and will be taxed accordingly at that rate.
The businesses involved in the excisable goods, should categorise the goods properly to apply the excise tax rate accurately.
The writer, Mahar Afzal, is a managing partner at Kress Cooper Management Consultants. The above article is not an official opinion of Khaleej Times but an opinion of the writer. For any queries/clarifications, please feel free to contact him at [email protected].