Excise tax on select products from today
UAE TARGETS SUGARY DRINKS, TOBACCO PRODUCTS TO COMBAT DIABETES, OBESITY
On a historic day for the UAE, the country’s first general tax came into effect, increasing prices of sugary drinks and tobacco products nationwide.
The excise tax, thought to be the largest implemented globally, comes as the government attempts to curb consumption of unhealthy products.
The new tax places a duty of 50 per cent on carbonated drinks and 100 per cent on tobacco products and energy drinks.
Amidst an ongoing health crisis in the Gulf region that has seen cases of diabetes and obesity soar, the government hopes to reduce consumption of harmful products with this tax.
However, teething problems are expected, with retailers saying they need more information and still have stocks with old prices.
“Groceries like us are expecting new invoices from our suppliers reflecting the tax-included prices. We also heard drinks cans will show the new prices — like Dh2.25 — on them, but this is not confirmed or official,” said an Iranian shopkeeper at a grocery in Al Quoz who asked to remain anonymous.
Tabacco companies have also said they are concerned about about people smuggling cigarettes into the GCC countries and selling them on the black market.
The government expects the tax will, in combination with value-add tax expected in 2018, generate around Dh7 billion in revenues for its federal budget annually.
The UAE today begins taxing soft drinks and cigarettes as it attempts to curb the consumption of harmful products, whilst seeking to introduce new sources of state income.
Following nearly two years of consultations with the private sector, the duty introduced today, called the excise tax, is the first of two planned for the UAE. It places a 50 per cent tax on carbonated, sugary drinks, and a tax on energy drinks and tobacco products of 100 per cent. The second tax, called the value-added tax or VAT, is set to be introduced on January 1, 2018, at a rate of 5 per cent.
The purpose of the tax on unhealthy goods, widely considered to be the largest ever implemented anywhere, is twofold: To both halt the rise of lifestyle diseases such as diabetes and obesity, and at the same time boost state revenues following the collapse of oil prices three years ago.
The price of sodas is expected to increase from Dh2 a can to Dh3. Cigarettes will now cost around Dh20, depending on the brand, and energy drinks will cost around Dh16. The tax will be implemented in shops, supermarkets, restaurants and hotels, or anywhere else you might buy such products in the UAE.
“The excise tax forms an integral part of the fiscal direction being implemented in the Gulf Cooperation Council (GCC), alongside VAT and a possible corporate tax in the future,” James George, senior research analyst at Euromonitor International, told Gulf News in June.
Why the government is introducing a tax targeting harmful products
Amid an ongoing health crisis in the Gulf region that has seen cases of diabetes, obesity, and heart disease soar, the government has sought to reduce the consumption of harmful products through this excise tax on sugary drinks and tobacco. In a recent report by Gulf
News, health and tax experts told the paper that tobacco demand in the UAE is expected to slump by 40 per cent following the introduction of the 100 per cent excise tax. An effective doubling of prices for a single pack of cigarettes will not only help boost national health tax revenues to fund public health services, it will also jump-start a healthier population by reducing cancer-causing products and their long-term diseases across the country.
The World Health Organisation (WHO) is lauding countries such as the UAE for imposing heavy excise taxes to curtail tobacco demand and boost healthy behaviour.
In 2013, Dr Frank Hu, Professor of Nutrition and Epidemiology at Harvard School of Public Health, made the case that there is now sufficient scientific evidence that decreasing sugar-sweetened beverage consumption will reduce the prevalence of obesity and obesity-related diseases.
Another study in 2010, published in Diabetes Care, found that people who consume sugary drinks regularly — one to two cans a day or more — have a 26 per cent greater risk of developing Type 2 diabetes than people who rarely have such drinks.
In the face of overwhelming
evidence that sugary drinks cause a number of diseases, the UAE has decided to act.
There is, of course, a financial element to the introduction of this tax, too. When oil prices began to fall sharply in mid-2014, driven by weak demand in developing countries due to slow economic growth and strong output from US producers, countries throughout the GCC were forced to reassess how state projects would be funded, with their income now seriously impacted.
The International Monetary Fund (IMF) warned Gulf countries in 2015 that the “large and persistent” drop in oil prices had made the need to diversify
revenues and cut spending more urgent.
In a historic pan-Gulf decision, the six countries of the GCC decided to introduce taxes, in order to bolster state revenues and continue along the path of rapid development and modernisation.
Revenue generation
According to UAE government estimates, the excise tax and VAT are together forecast to generate around Dh7 billion in annual revenues for the Federal Budget. Other countries, such as the United Kingdom, are planning to implement similar taxes on sugary drinks.
In the UK, the yearly tax
collection on such drinks was estimated to be £520 million (Dh2.45 billion).
Beyond the fact that these taxes will raise money for the government to spend on public services such as roads and other types of infrastructure, improving people’s health may actually save the UAE billions in the long term. In 2005, the Centre for Diseases Control and Prevention (CDC) said that the medical costs attributable to obesity in the US was an estimated $190.2 billion (Dh698.6 billion), or 20.6 per cent of all medical expenditures.
With obesity rising at an “alarming” rate in the emirates, according to a UAE University study conducted on children last year, the economic impact of improving citizens’ health and reducing the burden on the public health system could benefit the country for many years to come.
What are companies saying about the tax?
Companies, predictably, remain wary of the incoming taxes. They say that prices will increase too fast, and that taxes should instead be introduced bit by bit to avoid overly disrupting their sales.
For tobacco companies and energy drinks manufacturers, who will be hardest hit by the 100 per cent increase, many businesses expect sales to dip.
Mandeep Singh Khurana, managing director of Fabcraft General Trading, who distributes the Superman energy drink in the UAE, described the tax as expensive.
“This will obviously have an impact on our sales, and it’ll make it more difficult to sell the product,” Khurana said.
Hans-Kristian Hoejsgaard, CEO and president of Oettinger Davidoff AG, a cigar maker, told
Gulf News that his company was “obviously not a great supporter of this so-called sin tax.”
The chief executive was referring to the excise tax by its colloquial name of the ‘sin’ tax.
It will be impossible to avoid passing this additional cost on to the consumer, Hoejsgaard said. “The price is going to be higher, but there’s no way around that. We have to pass the cost on. We’ll see what the impact will be,” he said.
Senior executives from British American Tobacco (BAT), which owns cigarettes brands such as Dunhill, Lucky Strike, and Kent, have complained about the lack of a phased-in approach, telling Gulf News that the overnight implementation of the tax will be harmful to their business.
Tarek F. Najjar, head of Legal & External Affairs in the Middle East at BAT, told Gulf News that he was very concerned about people smuggling cigarettes in to the GCC and selling them on the black market, pointing to examples in countries such as the UK and the US, where similar tax hikes had created an illicit trade in tobacco.
Aujan Coca-Cola, Dubai Refreshments (Pepsi Co), Al Fakher (the maker of the UAE’s most popular shisha tobacco), Red Bull and a number of other manufacturers and distributors declined to comment for this story.