UAE taxman leads way with digital stamps on cigarette packets

Cigarette packets in the UAE will carry “digital stamps” from next year in a government crackdown on tax evasion.

Officials hope the scheme will assist authorities in preventing tobacco smuggling and in recouping millions of dirhams in lost revenue.

So-called “illicit whites” – cigarettes imported illegally into the Emirates – account for up to 30 per cent of sales.

Demand for the cheap imports is also thought to be increasing after the government doubled the price of tobacco products on October 1 last year.

Yesterday, a Federal Tax Authority spokesman said the digital stamps would allow officials to “efficiently collect taxes, ensure transparency and combat tax evasion”.

The authority warned cigarette manufacturers to abide by the scheme, claiming anyone caught operating illegally would be prevented from “exercising any commercial activity until they comply fully”.

The stamp initiative is expected to be introduced across the UAE by the start of next year.

Authorities are battling illegal importers, typically from Iraq, Syria and Iran, who ignore paying excise duty.

Under the scheme, all cigarette packets sold in the UAE must display the correct stamp, which contains importer and manufacturer details.

Special scanners will allow customs officials and others to check individual products, ensuring the goods can be properly traced and accounted for.

“If someone is selling a pack of cigarettes that used to be sold for Dh11 and is now being sold for Dh22, and the excise duty hasn’t been paid, their profit is going to be huge,” said Lisa Martin, founder of The Counting House, a local VAT consultancy.

“It’s much less easy to track excise duty than it is to track VAT, because VAT is charged and paid over by the retailer.”

The digital stamp scheme will initially apply to cigarette packaging, but will eventually be expanded to include all tobacco products sold in the UAE.

Anyone found in possession of products that do not carry the stamps, or who allows the use of their facilities to sell them, will suffer a financial penalty.

Fines, which have yet to be announced, will also be issued against anyone found to have tampered with the stamps or who print labels on top of them.

In 2016, Dubai Police seized 7.6 million tobacco products as part of a broader haul of counterfeit goods worth Dh1.6 billion, although the exact value of smuggled tobacco was not given.

“The UAE is the first country in the region to implement a digital tax stamp scheme for tobacco products,” FTA director general Khalid Al Bustani said.

“The system offers a solution for combating tax evasion and facilitating inspection and control at customs and markets.

“Digital tax stamps are placed on the packaging of tobacco products and registered in the FTA’s database. They contain tax-related data that can be read using special devices.”