Some products may disappear from shop shelves, say experts

Costs could be too high for market

The introduction this year of excise taxes on sugary drinks and tobacco is expected to have a broad effect on importers, manufacturers and suppliers in the UAE, tax experts said.

The Federal Tax Authority said on Tuesday that excise taxes would be introduced in the last quarter of this year at a rate of 100 per cent for tobacco and energy drinks and 50 per cent for sugary fizzy drinks.

The authority will open tax registration in the third quarter of the year for companies that produce, import or store these products.

Globally, the amount of tax levied on such items is based on the sugar or tobacco content or a combination of content and value, said experts.

In the UAE, the tax will be calculated as a percentage of the retail sale prices (RSP), the Federal Tax Authority said.

“While many international jurisdictions have implemented an excise tax, we do not consider the use of the RSP as the tax base as widespread and indeed may create practical challenges for importers and manufacturers of impacted products,” said Adrienne D’Rose, a senior manager at Deloitte . “As the importers and manufacturers [in the UAE] are unlikely to be the entities selling the goods at retail level, they are unlikely to have clear visibility on the RSP.

“It is unclear how retail discounts, rebates, seasonal variations, etc will be considered.”

The Ministry of Finance could not be reached for comment on details of how the excise tax would be determined for each product. The UK plans to introduce a sugary drinks tax next year, following in the footsteps of France, Finland, Hungary and Mexico.

The levying of excise taxes in the UAE, which will be followed by the introduction of a GCCwide 5 per cent value-added tax on January 1, is part of regional efforts to shore up government revenues hit by a fall in oil prices since mid-2014.

According to the GCC agreement on excise tax, it is up to each country to decide on the rate – capped at 100 per cent.

Experts said the tax could lead to some items being withdrawn from the market or altered.

“It is common practice when such taxes are introduced for producers and suppliers to look at options to substitute similar but untaxed products into the market,” said David Stevens, VAT implementation leader at market expert company EY.

The introduction of the one euro per litre “Red Bull tax” in France in 2014 prompted manufacturers to lower the caffeine content in energy drinks, said Euromonitor International.

Jeanine Daou, a Middle East indirect tax leader at consultancy PwC, said the excise taxes would mean a reassessment for many companies.

“They would need to look at the potential effect of the tax on consumption/demand and decide on their pricing/market strategy,” she said.