VAT And Excise Tax

The Difference Between VAT And Excise Tax In UAE

The Government of UAE launched VAT And Excise Tax on goods and services from January 1, 2018.  VAT is an indirect tax on the consumption of goods and services levied at each point of sale.

The Government of UAE launched VAT And Excise Tax on goods and services from January 1, 2018.  VAT is an indirect tax on the consumption of goods and services levied at each point of sale. VAT is levied on more than 150 countries across the world where end consumer bears the cost and companies collect it on behalf of the government.

The excise tax was introduced across UAE in 2017 and is a form of an indirect tax on specific goods and services. Both Excise and VAT are a form of indirect tax on certain goods and services and are levied for different purposes. These taxes provide additional revenue for the government of the UAE.

Key Differences Between VAT and Excise Tax in the UAE

There are so many taxes out there, and the most confusing of them all are the indirect taxes of VAT and Excise in UAE. UAE has long been famous for being a tax-free zone, but the government has recently levied these taxes for several purposes and revue generation.

Well, if you are confused about these taxes, then here is a brief view of some major differences between VAT and Excise tax.

1.     Purpose of Taxation

·        VAT:

Value Added Tax is an indirect tax imposed on the use of different goods and services. The sole purpose of this tax is to generate revenue for the government that will be utilized for providing public services like public transport, motorway management, etc.

UAE has long depended on oil reserves and hydrocarbons for government revenue, and VAT provides a new source of income for the government. Countries always find alternate ways of revenue generation to keep the economy moving.

·        Excise Tax:

Excise Tax, also known as “Sin Tax,” is an indirect tax imposed on specific goods that are harmful to human health and the environment. Goods that are taxed under this category are called “excise goods.” The purpose of this tax is not only to increase government revue but also to reduce the consumption of unhealthy food and other goods.

One of the major goals of the Excise tax is to decrease the consumption of potentially harmful goods like high sugary drinks products and tobacco among the UAE residents. These products contribute to adverse health risks such as lung cancer, obesity, and cardiovascular diseases, which ultimately burdens the health sector.

It is observed that businesses are finding it difficult to adjust to this new tax system. Therefore, it is advised to approach the tax agency known for Best VAT consultancy that can assist you with VAT and Excise registration.

2.     Goods and Services Applicable for Tax

·        VAT:

Vat is charged on a wide range of goods and services in the UAE. Following is a general list of sectors where VAT is levied:

  • Business Sector
  • Education Sector
  • Retail Sector
  • Real Estate Sector
  • Health Sector

The goods and services on which tax is levied are called ‘Taxable Supplies.’ There are ‘Exempt Supplies’ in which no tax is imposed. Examples are financial services, residential property, and bare land.

There are also ‘Zero Rated Supplies’ on which currently the VAT rate is zero, but you must register if turnover exceeds a certain threshold. Examples include children’s clothes, footwear, basic food, water, newspaper, etc.

·        Excise Tax:

Some specific products under this tax include carbonated drinks, tobacco, and energy drinks.

  1. Carbonated Drinks: It includes all beverages except for unflavoured aerated water. It also includes products like powders, extracts, or gels used to make aerated beverages.
  2. Energy Drinks: It includes beverages that are sold internationally as energy drinks like Red Bull. These drinks include substances like caffeine, taurine, and guarana that give mental and physical stimulation.
  3. Tobacco and all Tobacco products: This category includes all the products outlined under Section 24 of the GCC Common Customs Tariff. This also includes cigarette substitutes like cigars, e-cigarettes, and Vaporizers.

3.     The Rate of Tax Imposed on Goods and Services

·        VAT:

The rate of VAT is standard at 5% in UAE. VAT is charged in proportion to the price of a good and service. There are, however, some ‘Zero Rates Supplies’ with zero present VAT rate, as discussed above.

·        Excise Tax:

Excise Tax rates in UAE are different for different products. For example,

  • Carbonated drinks have a 50% excise tax
  • Energy drinks have a 100% excise tax
  • Tobacco and tobacco products are charged a 100% excise tax.
  • Electronic smoking products like e-cigarettes or vapes have a 100% tax.
  • Goods with added sugar and artificial sweeteners have a 50% tax.
  • Businesses in UAE Required to Register for VAT and Excise

Almost all businesses need to register for VAT and Excise Tax in the UAE. It is a requirement for companies engaging in international trade, retail of goods and services, stockpiling of taxable goods, etc. And keep in mind that FTA has the authority to conduct audits to make sure taxes are being paid in full.

Therefore, it is to get advice from the Best VAT consultancy in Dubai today, so they can help you with registration and save you from hefty penalties in case of non-payment or payment delays.