The GCC framework agreement for Excise Taxes was signed by all six GCC countries. Following the agreement, the Government of Saudi Arabia approved the Excise Tax law, issued by a royal decree on the 23rd of May 2017. The Excise Tax law goes into effect today, on the 16th of Ramadan 1438 (11th of June 2017), and all businesses that import or produce stock of excisable goods are expected to register with the General Authority of Zakat and Tax (GAZT).

Excise Tax Rates

The Excise Tax rates to be imposed are a 100% on energy drinks and tobacco products, and a 50% on carbonated drinks (including soft drinks, carbonated water, and juice). This means that for example if a soft drink can cost SAR 1.5 in the supermarkets, it will now cost SAR 2.25. The rates mentioned above may differ depending on the nature of the product. For example, carbonated drinks may have different tax rates if they are dispensed as fountain drinks or as cans. The bylaws were issued on the 14th of Ramadan and are in effect on the same date the tax law is effective on, i.e. 16th of Ramadan.

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Compliance

As mentioned previously, the excise tax law goes into effect on the 16th of Ramadan. Businesses that have failed to register with the GAZT, still have a 30-day period to do so. During this period, businesses (manufacturers and importers) are expected to register and declare the goods in stock on 16th of Ramadan (11th of June). All businesses, including wholesalers and retailers, owning stock worth SAR 60,000 or more, must submit a mandatory transitional excise tax return declaring the stock to the GAZT. Tax experts are readily available to assist you with your registration process, declaration of goods, and submission of mandatory excise tax returns.

Violations and Penalties

Executive regulations have specified that fines will be levied on businesses for several reasons including:

  • Failure to register with the GAZT
  • Late Declaration
  • Tax avoidance
  • Late payment of taxes

Manufacturers and Importers

Manufacturers in Saudi Arabia are obliged to register with the GAZT, and are provided with the following options:

  1. Producers can submit an excise tax return and pay the tax amount due within 45 days.
  2. Declare the stock available on hand on the 11thof June that is meant to cover the months of July and August in a periodical tax return within the first 15 days of September, and pay the excise tax amount due within the first 30 days of September.

Importers, on the other hand, might not be required to submit periodical tax returns if the excise tax is paid to the customs authority at entry to the Kingdom.

Businesses operating in the Kingdom should ensure that they register with the GAZT within the specified timeline and operate with compliance to the excise tax law. It is imperative that businesses should also begin planning and conducting a VAT impact assessment. VAT impact assessments should help in identifying limitations and in planning a VAT efficient operating and trading structures. To learn more about VAT impact assessments click here.

For VAT support, consultations, and inquiries contact: tax@nuummiteconsulting.com

Contact our partners in Saudi Arabia via vat@alrikaz.com.sa

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