Saudi Arabia. New Excise Tax Law in 2017

26 de Mayo de 2017

Saudi Arabia has taken the decision to implement Excise Tax by the end of 2017 and Value Added Tax (VAT) in January 2018 as the rest of the countries of  the Gulf Cooperation Council (GCC)​

The excise tax is different from the VAT one rated at 5% .

The introduction of the excise tax will meet two fundamental Government objectives: to raise the Government revenues and to discourage the consumption of goods considered harmful to health. This is an important policy reform aimed at promoting economic growth and fiscal stability.  The GCC Governments have been considering the need to diversify revenue streams away from hydrocarbon, and Excise Tax is typically seen as an effective tool in raising revenue.

Saudi Arabia is a monarchy ruled by King Salman bin Abdulaziz Al Saud, who became king after the death of his half-brother in January 2015. Officially known as the Kingdom of Saudi Arabia, it is a desert country and an Arab Muslim State situated in Southwest Asia. Saudi Arabia occupies most of the Arabian Peninsula, bordering the Red Sea. It is surrounded by Iraq, Jordan, Qatar, United Arab Emirates, Oman, and Yemen.

The country shares maritime borders as well with Egypt,Bahrain, Iran, Eritrea and Sudan. Saudi Arabia is the largest country in middle easter with more than 2 million km². It is the fifth largest country in Asia.

The country has a population of more than  31 million people where according to the Government the 14% of the population are smokers, most of them teenagers.

This is one of the main arguments of the Government for the new excise tax that among other products will levy a tax of 100% on tobacco.

Saudi Arabia is the largest oil producer in the Middle East with an strong government control over major economic activities and ranks as the largest exporter of petroleum in the world. The oil reserves are the second biggest in the world, estimated around 268 billion barrels.

The Excise Tax will be implemented on a later stage compared with the VAT by 2017 where tobacco and tobacco products will be taxed (at 100%), carbonated drinks (with a ta rate of 50%) and energy drinks (at 100% tax rate as well). ​The is no definition yet a bout what should be deemed as carbonated drink. However, it is expected that any drink containing carbon dioxide and flavoring may be deemed as such.

The Excise tax will be imposed on goods considered harmful to humans and the environment including luxury items. It is expected that new products will be taxed as well later. The law will come into effect 15 days after the date of its publication in the Official Journal.

Manufacturers and importers of these goods will be required to register for excise tax purposes. 

1.- For imported goods, excise tax is expected to be levied upon import.

2.- For goods manufactured in Saudi Arabia, excise tax is expected to be levied upon release of the goods from the manufacturing site except if goods are entered into an excise warehouse.

Excise tax collected is required to be paid to Saudi Arabian Tax authorities within  the time limits specified  and will be due once the goods are released for consumption.

As Excise Tax is a tax which is only levied once in the supply chain, it is expected a refund mechanism for companies which may have paid the tax more than once.

It will work, as general and normal mechanism for goods under excise duties, under suspension regimens. 

Authorized areas for working under excise duties suspension will be excise warehouses where the warehouse will need to meet certain conditions in terms of area separation, control and security. The excise warehouse keeper will need to apply for a license that in principle it is expected to be granted with no expiration date.

Customs warehouses and free zones will not automatically fall outside the scope of Excise Tax.

Still to see final draft and implementation.