UAE to introduce 100% tax on tobacco, energy drinks in Q4 – report

The UAE’s Federal Tax Authority (FTA) has announced that a 100 per cent selective tax on tobacco and energy drinks and 50 per cent tax on soft drinks will be applied in the fourth quarter, according to reports.

Gulf News reports that the announcement was made during the FTA’s first meeting.

Obaid Al Tayer, minister of state for financial affairs was previously quoted as saying the tax on tobacco could generate Dhs2bn ($544.5m) a year alone.

During the session the soon to be introduced 5 per cent value added tax rate was also discussed.

“The tax procedures law is in the final phase, and will soon be issued and published,” Sheikh Hamdan Bin Rashid Al Maktoum, deputy ruler of Dubai and minister of finance was quoted as saying.

“VAT law is being debated by the technical legislative committee in preparation for submitting it to the Cabinet for approval, while the selective tax draft law will be soon discussed by the committee.”

International transportation, commodities and exports, health and education services and gold imported for investment purposes are exempted from the taxes, according to the publication.

Other exemptions include residential buildings for sale or lease during the first three years after the building’s completion, some financial services and empty plots of land.

Businesses with annual income of or above Dhs375,000 are required to register for the VAT system with registration to begin in the third quarter and become compulsory in the fourth quarter.

VAT will then be applied from January 1, 2018.

Firms with income of Dhs187,500 and above also have the option to register with the system.

Some sectors will be exempt and other like international transport are zero-rated.

Companies that are exempt will not be able to recover VAT costs for items or services that are not exempt and must decide whether to pass the cost on to the consumer, it was reported.

Businesses with zero-rated services and good can reclaim any VAT costs from the government.

Despite the short timeframe a recent survey found many businesses were not prepared for the VAT’s introduction.

Read: UAE businesses found unprepared for VAT introduction

The Gulf-wide value added and selective taxes officially came into force yesterday after the UAE ratified the documents for the two agreements.

Read: GCC value added and selective taxes come into force

Many of the Gulf states are expected to implement the 5 per cent VAT rate from January 1, but the introduction of the selective tax and the goods affected has been less clear.

In March, Qatar’s only alcohol shop warned customers of price rises suggesting the country’s selective tax may also be applied to other goods.

Read: Qatar’s only alcohol shop encourages purchases ahead of sin tax