Dubai: The Federal Tax Authority (FTA) announced a selective tax of 100 per cent on tobacco and energy drinks, and 50 per cent on carbonated beverages that will be applied in the fourth quarter of this year.

The announcement was made by the FTA during its first meeting chaired by Shaikh Hamdan Bin Rashid Al Maktoum, Deputy Ruler of Dubai and Minister of Finance.

The FTA meeting was attended by Obaid Humaid Al Tayer, Minister of State for Financial Affairs, Younis Haj Al Khouri, Undersecretary at the Ministry of Finance, Sultan Ahmad Bin Sulayem, Chairman of Ports, Customs and Free Zone Corporation, and other board members and senior officials.

The rate for value added tax (VAT) was set at 5 per cent and will be implemented on January 1, 2018. Shaikh Hamdan said that the VAT rule was introduced by the authority to achieve economic diversification in preparation for the post-oil era.

“The tax procedures law is in the final phase, and will soon be issued and published. The VAT law is being debated by the technical legislative committee in preparation for submitting it to the Cabinet for approval, while the selective tax draft law will be soon discussed by the committee,” Shaikh Hamdan said.

Awareness campaigns were launched in March by the Ministry of Finance about VAT, selective tax and tax procedures. This is aimed at ensuring the compliance with the tax law for those who are eligible to pay the VAT.

Shaikh Hamdan underlined the important role of FTA in managing, collecting and implementing federal tax laws, by adopting the best practices in increasing non-oil revenues.

Twenty-three workshops were organised, targeting the business community in the UAE to explain tax procedures, their obligations and how to register with the VAT system.

International transportation, commodities and exports, health and education services, gold imported for investment purposes are exempted from taxes.

Also exempted are residential buildings for sale or lease during the first three years in which the building is completed, some financial services and empty plots of land.

All business that meet the minimum annual income of Dh375,000, as confirmed by their financial records, are required for compulsory registration with the VAT system. Deadline for registering with the VAT system will start in the third quarter of 2017, but will be compulsory in the fourth quarter. Businesses with an annual income of Dh187,500 and above have the option to register with the system.

Some sectors are exempt, while others, such as exports and international transport, are zero-rated.

Businesses exempt from VAT will not be able to recover from the government the tax incurred on the cost of an item or a service that is not exempt, and it will be up to the business to decide whether to pass on the VAT cost to the consumer.

But when businesses have zero-rated services and goods they can reclaim from the government any VAT they have paid on costs.