New system for collecting tobacco tax starts in 2019
New system uses digital stamps to try to cut down on tax avoidance
The new system for the collection of excise taxes of tobacco and related products will go into effect in the beginning of 2019, according to the Federal Tax Authority (FTA) on Saturday.
In collaboration with the relevant authorities, the tax system has been designed “to ensure a single integrated set of procedures is rolled out, guaranteeing the protection of rights and responsibilities of Taxable Persons, as well as ensuring transparency with regards to the procedures that regulate their relationship with FTA.”
The FTA said tobacco suppliers must abide by the new scheme to avoid administrative penalties, which could include a ban on non-compliant businesses, preventing them from exercising any commercial activity until they comply fully with the system.
The FTA reaffirmed that Cabinet Decision No. (42) of 2018 on Marking Tobacco and Tobacco Products establishes an accurate and effective control system, allowing the body to efficiently collect taxes, ensure transparency and combat tax evasion. The FTA said another decision is expected to be issued by the Cabinet, detailing the administrative penalties imposed on violations of procedures, including fines imposed on a person who possesses excise goods that do not carry digital stamps, or who permits the use of his/her facilities to sell such products.
The FTA said penalties will also be imposed on persons who tamper with the stamps placed on these goods, or those who print on top of them. Penalties will also be imposed on persons who fail to declare the transfer of excise goods, those who fail to comply with the safe-storage requirements for the stamps; those undertaking unauthorised trading, exchange, sale or supply of stamps; and persons who re-use previously used stamps.
“The UAE is the first country in the region to implement a Digital Tax Stamp Scheme for tobacco products — the most advanced of its kind in the world,” said FTA Director-General Khalid Ali Al Bustani.
“The system offers an innovative solution for combating tax evasion and facilitating inspection and control at customs and markets; it prevents the sale of tobacco products where excise tax has not been settled.
Stamping system
Digital tax stamps — placed on the packaging of tobacco products and registered in the FTA’s database — contain tax-related data that can be read using special devices.
The authority said the cabinet decision outlined the procedure to be followed to apply the stamps on tobacco products and indicate that the due excise tax has indeed been paid.
The stamps must be applied on specific products and in the exact position determined by FTA. The decision stipulates that the stamps are to be placed onto excise goods (after packaging) at the facility where they are produced (if manufactured in the UAE), or at a location outside the country before importing them.
As for the procedures surrounding the stamps’ supply, the decision requires the importer or local producer to issue an order to purchase the stamps according to procedures predetermined by FTA, indicating that the approved supplier must supply said stamps to the importer or local producer. No other person may trade, exchange, sell or supply these stamps; importers across the UAE may request the approved supplier to supply the stamps directly to the specific producer of excise goods, which may include foreign producers. The authority also sets the due tariffs on the stamps, which must be paid by the supplier before the stamps are issued.
The cabinet decision specified mechanisms for tracking and identifying the origin of specific excise goods (tobacco and tobacco products), indicating that importers/local producers/persons designated in the supply chain must keep records of the transfer of all excise goods to and within the UAE, during the period in which they are in possession of these goods. This includes (but is not limited to) the entry of the said excise goods into the possession of the importer/local producer/person designated in the supply chain, as well as the gradual transfer of these goods within the UAE, until they exit the possession of said importer/local producer/person designated in the supply chain.
The “designated person” is defined as any person dealing with the excise goods in question, as required by the FTA to document the movement of these goods. All importers/local producers/persons designated in the supply chain are required to register and declare the excise goods they buy, sell, store, transfer or process.
Meanwhile, customs agencies are tasked with verifying stamps on excise goods entering the UAE.