Excise tax is imposed by the United Arab Emirates to regulate products that pose health and environmental risks through the implementation of an excise tax system. This taxation framework, encompassing items like tobacco, energy drinks, and sodas, serves as a deterrent to excessive consumption while addressing societal and ecological concerns. In recent times, the UAE government has introduced substantial revisions to excise tax payment obligations, signaling a broader commitment to fiscal sustainability and regulatory enhancement. This blog post is an exploration of excise tax liability in the UAE, in the light of the amended regulations and their impacts on various stakeholders across the supply chain.
The Evolution of UAE Excise Tax Liability:
The excise tax domain in the UAE has witnessed a paradigm shift with the unveiling of Cabinet Decision No. 108/2023 on November 6, 2023. These amendments, building upon the foundation laid by Federal Decree-Law No. 7/2017 on Excise Tax, represent a seismic alteration in tax responsibility. Crucially, revisions within Article 2 of the Implementing Regulation have expanded the ambit of tax liability and ushered in novel standards of accountability.
Who Bears Excise Tax Liability?
Primarily, excise tax liability pertains to specific roles within the supply chain, such as producers, importers, and retailers. However, the revamped regulations adopt a holistic approach, extending tax responsibility to a wider array of entities. Under Article 2 of the latest Excise Tax Decree-Law, individuals engaged in activities outlined in Part (2) are now subject to tax liability. This encompasses participants in the supply chain, investors, owners of excise goods, warehouse keepers, and stockpilers.
What are the Implications of Excise Tax for Different Entities?
The amended regulations have significant implications for different entities involved in the excise tax domain. Important key points are mentioned below:
Participants in the Supply Chain: Individuals involved in supply chains where excise tax obligations have been neglected are now accountable for tax payments. This means that they have to ensure that the excise tax is duly paid at every stage of the supply chain, from production to consumption. If the concerned fails to comply, fines and penalties may be imposed, as well as legal action by the authority.
Investors or Financial Stakeholders: Those with financial interests in supply chains where tax payments were overlooked are also liable for tax liabilities. This means that they have to bear the risk of tax evasion by their partners or associates, and may have to pay the tax on their behalf if they are unable to do so. This may affect their profitability and reputation, as well as expose them to legal consequences.
Owners of Excise Goods: Even individuals not traditionally assuming roles such as producers or importers but owning excise goods are subject to tax liability. This means that they have to pay the tax on the excise goods that they own, regardless of whether they intend to sell them or not. This may affect their cash flow and inventory management, as well as require them to keep accurate records of their excise goods.
What is the Role of Warehouse Keepers while enforcing Excise tax liability?
Warehouse keepers play a pivotal role in enforcing excise tax regulations. Article 2 introduces new criteria for warehouse keeper liability, diverging from conventional tax norms. Warehouse keepers may face accountability in cases where they fail to maintain prescribed records, contravene regulatory conditions set by the authority, or derive benefits from tax evasion. Warehouse keepers may have to pay excise tax in some circumstances as stated below: -
Possession of Untaxed or Under-taxed Excise Goods: -If they possess excise goods in storage that have either not been taxed or have been subjected to a lower tax rate than what is mandated in the UAE.
Unauthorized Release of Excise Goods: -When they release excise goods from their warehouses without ensuring that the tax has been paid or without obtaining the necessary approvals from the authority.
Non-compliance with Warehouse Movement Procedures: -When they facilitate the movement of excise goods between warehouses without complying with the rules and procedures set by the authority.
Benefitting from Evasion or Underpayment: -When they benefit from the sale or disposal of excise goods that have been evaded or underpaid.
What Are the Relief Measures for Stockpilers Under UAE Excise Tax? Certain relief measures have been instituted to alleviate the burden on stockpilers while imposing tax liability. Stockpilers are exempt from tax liability if they meet specific criteria related to the ownership and purpose of excise goods. However, compliance with regulatory conditions, including the absence of surplus excise goods, is imperative to qualify for this exemption. Some of the situations where stockpilers may be exempt from tax liability are:
Personal Consumption of Excise Goods: -In cases where they possess excise goods for personal consumption rather than for commercial utilization.
Ownership of Tax-Exempt Excise Goods: - When they own excise goods that are exempt from tax under the law, such as medicines or medical equipment.
Excise Goods under Transitional Period: -When they own excise goods that are subject to a transitional period, such as goods that were acquired before the implementation of the excise tax system or before the introduction of new tax rates.
The UAE’s excise tax regime continues to evolve, underscoring a commitment to fiscal responsibility and regulatory efficacy. The recent amendments to excise tax liability epitomize the government’s proactive stance toward addressing public health and environmental concerns. By broadening the scope of tax responsibility and enhancing compliance mechanisms, the UAE endeavors to forge a sustainable and resilient fiscal framework for the future.
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