What is Excise Tax?

Excise tax was introduced across the UAE in 2017. It is generally levied on goods considered harmful to the general public’s health. The aim of the excise tax is, therefore, to discourage the general public from consuming those specific goods. An excise tax is an indirect tax levied on unique goods that are either:

• Imported into the UAE
• Produced within the UAE

From 1 December 2019, the excise tax was also levied on:

• Electronic smoking devices and tools
• Liquids used in such devices and tools
• Sweetened drinks

Rate of Excise Tax in UAE :

According to Cabinet Decision No. 52 of 2019 on Excise Goods, Excise Tax Rates and the Methods of Calculating the Excise Price are as follows:

• 50 per cent on carbonated drinks
• 100 percent on tobacco products
• 100 percent on energy drinks
• 100 percent of electronic smoking devices
• 100 percent on liquids used in such devices and tools
• 50 percent on any product with added sugar or other sweeteners

The United Arab Emirates has implemented some of the highest tax rates to lower the use of dangerous goods like tobacco and carbonated drinks.

Methods of Calculating Excise in the UAE:

In the UAE, indirect excise taxes ranging from 50% to 100% are imposed on alcohol, tobacco, and soft drink supplies. These taxes are calculated using the Specific and Ad Valorem methods utilized in the UAE to ascertain excise prices.

Specific Method: This method applies a fixed tax rate per unit of a particular product. For example, cigarettes incur an excise tax of AED 0.4 per cigarette, while energy drinks are taxed at AED 0.1 per milliliter.

Ad Valorem Method: Unlike the specific method, the ad valorem method calculates excise tax based on the product’s value. For instance, luxury cars are taxed at 5% of their retail price, while jewelry faces a 5% tax on its retail value.

How to calculate ExciseTax in UAE?

Excise tax will be applied to the retail selling price of the goods at the rate applicable to excise goods. In the UAE, excise tax will apply at a rate of 100% to the retail selling price of tobacco products.  

Excise Tax Calculation Example in UAE:

The UAE government has implemented an excise tax on electronic smoking devices: AED 50 per unit or 100% of the retail price, whichever is higher.

Specific Excise Tax Method:

The company imports a batch of 1,000 electronic cigarettes with a retail price of AED 150 each.

Calculation:

Excise Tax per unit = AED 50

Total Excise Tax = Excise Tax per unit × Number of units

Total Excise Tax = AED 50 × 1,000

Total Excise Tax = AED 50,000

In this specific method, the excise tax is AED 50 per unit, regardless of the retail price. Therefore, the company would pay a total excise tax of AED 50,000 for the entire batch of electronic cigarettes.

Ad Valorem Excise Tax Method:

The Ad Valorem method calculates the excise tax as a percentage of the product’s retail price. Considering the same batch of electronic cigarettes with a retail price of AED 150 each:

Calculation:

Excise Tax Rate = 100% (as specified)

Total Retail Price of the batch = Retail Price per unit × Number of units

Total Retail Price of the batch = AED 150 × 1,000

Total Retail Price of the batch = AED 150,000

Excise Tax = Excise Tax Rate × Total Retail Price of the batch

Excise Tax = 100% × AED 150,000

Excise Tax = AED 150,000

In this example, the Ad Valorem method results in a higher excise tax than the specific method because it is based on a percentage of the retail price.

Excise Tax Advisory in UAE:

As an Excise Tax Consultant in UAE, BRISK helps understand, calculate, and file Excise Tax in UAE. Our team of professionals is committed to guiding you according to your specific needs. We’re here to help you navigate tax complexities and ensure compliance with relevant rules.

For help with excise tax or other tax-related questions, contact our team.