Excise tax is a component of indirect tax system that has been adopted in the United Arab Emirates (UAE) with the main aim of controlling the consumption of some goods that are deemed to have negative impacts on the society. However, excise tax has faced various challenges and controversies when it comes to its implementation in the various industries. The purpose of this article is to describe the most significant challenges for companies operating in the UAE and the legal demands to consider, underlining the importance of compliance and conflict management.
Excise tax regulations UAE
The UAE has been through quite a transformation in its excise tax system over the past few years. The Federal Decree-Law No. 7 of 2017 on Excise Tax, and the Cabinet Decision No. 37 of 2017 on the executive regulation of the said law took effect from October 1, 2017. The first amendment to the Excise Tax Decree-Law was signed on September 26, 2022, and the changes came into force on October 14, 2022. The most recent changes were introduced on November 6, 2023, with the Cabinet Decision No. 108/2023 concerning the Amendments to Some Provisions of the Executive Regulation of the Excise Tax Law.
Industry challenges excise tax UAE
The following are important challenges that have been experienced in the implementation of excise tax;
- UAE excise tax compliance: Complying to the laws governing excise taxation is always a huge challenge and a tiresome process. Excise taxes are a challenge since businesses need to account for the tax for precise reporting, especially when one has numerous branches or a complicated supply chain.
- Excise Tax Rates UAE: The high levels of excise tax on some products may lead to high costs of production as well as the cost of consumer goods. This, in turn, can help cause lower demand and, consequently, less revenue for companies, especially the retailers.
- Regulatory issues excise tax UAE: Some of the guidelines for UAE excise tax are dynamic, and new policies are added or modified periodically. This fact can hamper the ability of businesses to predict their future and plan their expenditures accordingly.
- Excise Tax Planning and Strategy: With regard to taxes, it is imperative for firms to commence strategic planning for the minimization of excise tax. This involves the identification of supply chain tax structures, product pricing strategy, and using tax incentives. However, lack of legal requirements and the complexity of the excise tax policies may pose a challenge to the overall tax approaches.
- Supply Chain Disruptions: Excise tax has affected supply chain through poor supply chain management especially in industries that import their products. This has led to heightened costs in the production level, resulting to the firms being required to increase prices to reflect their profit margins. Furthermore, it has brought about administrative burdens since firms need to make certain that excise tax is paid on imported items.
- Consumer Behavior: The excise tax has also impacted consumer behaviour leading to the shift to cheaper products or products which are not under the excise tax regime which has emerged as a challenge to the enterprises majorly involved in trading the excise taxed products.
- Controversial Excise Tax Cases UAE: Due to the complexity and controversy of the excise tax in the UAE, several excise tax dispute lawsuits has been filed. One of these is the case of a company driver that was charged with tax evasion and which was set free by the Federal Supreme Court.
Excise tax dispute resolution UAE
Tax authorities involved in excise tax dispute resolution in the UAE:
| Authority | Responsibilities |
| Federal Tax Authority (FTA) | Responsible for issuing tax assessments, penalties and reconsideration of assessments. |
| Tax Disputes Resolution Committee (TDRC) | Handles appeals against FTA decisions and rules on disputes related to tax assessments. |
Key stages of the excise tax dispute resolution process in the UAE:
- Audit and assessment by FTA.
- Request for reconsideration of assessment by FTA.
- Appeal against FTA decision to the TDRC.
- Option to appeal TDRC ruling in courts comprising Federal Court of First Instance, Federal Court of Appeal and Court of Cassation.
Strategies for businesses to mitigate excise tax disputes in the UAE:
- Proactive Engagement: Consulting with the tax authorities is important to clear any confusion or misunderstandings concerning the law that regulates the excise tax.
- Tax and Legal Specialists: Hire individuals with tax and legal expertise to help the organization to meet its obligations on tax matters.
- Constant Reviews of Judicial Awards: It is advisable to carry out a constant analysis of judicial awards and decisions in order to get familiar with excise tax dispute new trends .
- Submission of Clarification Requests: This may involve writing to the relevant tax authorities to seek clarification on matters that might have remained cloudy or unclear as far as the excise tax provisions are concerned.
FAQs:
What are the primary industries affected by excise tax in the UAE?
The major industries that have been subjected to excise tax in the UAE are the tobacco industry, soft drinks particularly carbonates, and energy drinks.
What are the most common controversies surrounding excise tax in the UAE?
Below is the list of some of the most common controversies associated with excise tax in the UAE:
- Compliance and enforcement issues
- Issues in Tax planning and strategy
- Supply chain disruptions
- Changes in consumer behavior
How can businesses ensure compliance with UAE excise tax regulations?
For businesses in UAE to be in compliance with the existing excise tax laws,
- Creating a right strategy for taxation and planning
- Maintaining accurate records
- Being abreast with the existing changes in tax legislation
What are some notable excise tax dispute cases in the UAE?
Some of the significant legal cases of excise tax in the UAE include a case whereby the Federal Supreme Court set aside a judgment that was passed against a company driver for evasion of tax. This case also revealed that only those individuals who were directly engaging in business activities and those who had the criminal objective of avoiding the payment of taxes could be held guilty of tax evasion.
How do regulatory challenges impact the implementation of excise tax in various industries?
The regulatory concerns affect the imposition of the excise tax in different sectors due to enforcement issues that may arise, specifically across borders. Noncompliance and the collection of this specific amount of tax might be a difficult task for the companies, especially for SMEs, as they might encounter some difficulties in dealing with the complicated rules of excise tax legislation.
Conclusion
Controversies Regarding Excise Tax in the UAE remain a notable issue to businesses in the country. The issues and complications involved with the tax system might result in compliance problems, lack of clear rules and regulations, and contract controversy. To manage these risks businesses should establish proactive compliance strategies such as continuous education, employment of specialized tax and legal professions and the reviewing of judicial awards. In this way, businesses can guarantee compliance with UAE excise tax laws and reduce the risk of controversies.
