UAE to implement soft drink, tobacco tax this year

The selective tax has been agreed by Gulf countries, with Saudi Arabia eyeing implementation from April



The UAE is expected to implement taxes on tobacco, soft drinks and energy drinks this year following the approval of a draft law by the Federal National Council yesterday setting a legal framework for taxation.

The National cited Obaid Al Tayer, minister of state for financial affairs as saying during the session the tax could generate Dhs2bn ($544.5m) a year from tobacco alone while it was difficult to estimate revenue from drinks as consumption is likely to drop.

Alongside a value added tax rate of 5 per cent from 2018, the Gulf countries have also agreed to selective taxes on items deemed to be harmful to health.

Saudi Arabia’s finance minister was authorised last month to set a date for the tax’s implementation in the kingdom.

Read: Saudi authorises finance minister to set soft drinks tax date

This is expected to happen in April at the earliest.

Read: GCC governments look to tobacco tax as low oil prices bite

Qatar’s cabinet also approved a draft law relating to the tax last month.

“Under the provision of the draft law, the selective tax will be imposed on goods harmful to human health and the environment, and the luxury goods produced domestically or imported and set forth in the table attached to the law, and in accordance with the tax rates specific to it,” according to Qatar News Agency.

Each Gulf government will decide the exact tax rates and the items affected. The cap for excise duty agreed is 100 per cent.

Read: Why the GCC should have a tobacco tax

Saudi Arabia’s Fiscal Balance Program 2020 report, published by the government in December, said the kingdom would introduce a 50 per cent tax on soft drinks and a 100 per cent tax on tobacco and energy drinks.

Low prices of soft drinks and junk food have been blamed for rising rates of diabetes and obesity across the Gulf region.

Read: Counting the cost of type 2 diabetes on the UAE’s medical system

Responding to questions about the impact of the taxes on businesses and consumers, Al Tayer said he expected VAT to bring investment down by 0.06 per cent and real gross domestic product by 0.04 per cent, according to the publication.

He said the ministry was also studying the economic implications of introducing other taxes like corporate tax.

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