Excise Price | A Brief Scenario Analysis for Business | UAE

Excise tax, introduced in the UAE through Federal Decree-Law No. 7 of 2017, has been a significant tool for the government since its implementation in October 2017. This form of indirect tax applies to specific goods that are deemed harmful to human health or the environment, such as tobacco products, sugary drinks, and energy drinks. One of the critical aspects of excise tax compliance lies in determining the value upon which the tax is levied, known as the excise price. The accuracy in assessing this price is crucial, as it directly influences the tax payable and, consequently, the final retail price of the excisable goods.

Retail Selling Price (RSP) and Its Significance 

In the context of excise tax in the UAE, the term Retail Selling Price (RSP) is commonly used to refer to the excise price of goods. The excise tax in the UAE operates on an ad-valorem basis, meaning that the tax is calculated as a percentage of the product’s value. This percentage-based taxation underscores the importance of accurately determining the excise price, as any miscalculation can lead to discrepancies in the tax amount due. 

The Impact of Cabinet Decision No. 55 of 2019 

A significant shift occurred with the introduction of Cabinet Decision No. 55 of 2019, which established a minimum price for cigarettes and waterpipe tobacco. This decision mandates that taxpayers must pay excise tax based on a minimum price, regardless of the actual price calculated. This move by the Federal Tax Authority (FTA) aimed to ensure a minimum tax revenue from these products, curbing any potential undervaluation by taxpayers. 

Determining the Excise Price: A Practical Example 

To understand the process of determining the excise price, consider the following scenario: 

Suppose a company incorporated in the UAE intends to import cigarettes from another country and sell them within the UAE. The excise price for these cigarettes must be calculated by considering the product’s cost, including customs duties and the intended profit margin. The excise tax rate is then applied to this value, forming the excise price that must be registered with the FTA. 

However, the FTA has prescribed a minimum price for cigarettes. If the calculated excise price by the importer falls below this minimum price, the taxpayer is obligated to pay excise tax based on the higher, prescribed minimum price. Therefore, for an importer of cigarettes, the excise price to be registered with the FTA will be the greater of the calculated price or the minimum price set by the FTA. 

The Sensitivity of Excise Price Determination 

The determination of the excise price is a sensitive aspect of tax compliance. Any variation in this price can significantly affect the taxpayer’s liability. While the fundamental principle of determining the excise price remains consistent, the methodology may vary depending on several factors, including the nature of the excise activity, the type of product, the applicable tax rate, the business flow, and, most importantly, the final retail price (shelf price) at which the product is sold to the end consumer. 

Conclusion 

In summary, the excise price is a pivotal element in the UAE’s excise tax regime, influencing both tax revenue and market prices. The introduction of minimum prices for certain products like cigarettes adds another layer of complexity to this process, ensuring that tax compliance remains robust and aligned with regulatory expectations. For businesses dealing with excisable goods, understanding and accurately determining the excise price is essential to maintaining compliance and avoiding potential penalties. 

Summary

Excise tax in the UAE, introduced in 2017, is an indirect tax applied to goods like tobacco and sugary drinks. The tax is calculated based on the product’s value, known as the excise price. This price is crucial as it directly affects the tax payable and the final retail price. In 2019, the UAE government introduced a minimum price for certain products, such as cigarettes, ensuring a baseline tax amount regardless of the calculated excise price. For businesses, accurately determining the excise price is essential for compliance, as any discrepancies can significantly impact tax liability. 

Disclaimer: The Content offer general guidance and should not be considered legal, financial, or tax advice. Consult qualified professionals for personalized guidance. While efforts have been made to ensure accuracy, no guarantee is provided for completeness or applicability to individual situations. Users are responsible for their interpretation and actions based on this information, at their own risk.