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UAE to charge selective tax from October 1

New levy only on tobacco products, energy and carbonated drinks

Gulf News

DUBAI: The UAE’s excise tax on carbonated drinks, tobacco and energy drinks, which will launch on October 1, has generated a mixed reaction from analysts and businesses involved.

The first tax on carbonated, or fizzy, drinks, will see prices rise by 50 per cent.

“Wealthier people will not mind going from Dh2 to Dh3. But people at the lower end of the economic spectrum will stop consuming these products.”
-Colin Beaton, Limelight Creative Services
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“I think we’ll see the sales of drinks decline dramatically,” said Colin Beaton, managing director of Limelight Creative Services, a retail strategy agency.

“Many of the consumers of soft drinks are in the lower income brackets, who will be hardest hit. Wealthier people will not mind going from Dh2 to Dh3. But people at the lower end of the economic spectrum will stop consuming these products,” he added.

Separately, a tax of 100 per cent will be placed on energy drinks, such as Red Bull, and tobacco products, effectively doubling their price.

Companies are concerned by steep hike in prices that consumers will be faced with on the morning of October 1.

British American Tobacco executives 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.

“We are concerned that the sudden price increase will be damaging, and that the phased approach of countries implementing the tax at different times may incentivise smuggling,” said a spokesperson from British American Tobacco.

The sales of cigars are set to be impacted, too. Hans-Kristian Hoejsgaard, CEO and president of Oettinger Davidoff AG, a cigar maker, told Gulf News that his company was “obviously not a big fan of the tax.”

As for energy drinks, one UAE-based distributor handling the energy drink Superman described the tax as expensive, saying that it would impact sales, and make the product more difficult to sell.

Aujan Coca-Cola, Dubai Refreshments (Pepsi Co), Al Fakher (the makers of the UAE’s most popular shisha tobacco), Red Bull and a number of other manufacturers and distributors declined to comment for this story.

Not all companies are against the tax, however.

“It’s part of an international trend that’s happening. It makes sense,” said Tariq Al Wahedi, acting chief executive officer, Agthia, a major food and beverage conglomerate.

He added that producers needed to take greater responsibility.

“The price of a can of a soft drink is just too cheap. Given how heavily these sugary drinks contribute to obesity, it’s quite sensible,” said Johannes Holtzhausen, CEO of Spinneys, a supermarket chain.

Analysts say the tax serves two purposes: To raise money for the federal budget, and to combat diseases such as obesity from sugary drinks, and cancer from smoking.

“The selective tax forms an integral part of a fiscal direction being implemented in the GCC, alongside VAT and a possible corporate tax in the future,” James George, senior research analyst at Euromonitor International, said.

George added that the excise tax on carbonated drinks, energy drinks and tobacco will have the added benefit of countering the health risks caused by unhealthy products.

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