Digital Tax Stamp: Businesses Must Comply with New Excise Tax Norm

In a big boost to the excise tax regime in the UAE, the Federal Tax Authority (FTA) has clarified that it won’t allow the sale of tobacco products without Digital Tax Stamp from 1 January 2021. The requirement of Digital Tax Stamps was earlier carried out in cigarette products, but the Scheme now applies to water pipe tobacco as well as e-cigarettes. The announcement by the FTA deserves the immediate attention of the tobacco companies as well as sellers. Therefore, being FTA approved tax agents in Dubai, JCA offers you a glimpse on the Digital Tax Stamp (DTS) scheme.

What’s the Crux of the New Announcement by FTA?

As per the Excise Tax Public Clarification (EXTP006) issued by the FTA, the supply, transfer, storage and possession of tobacco products that do not bear the Red Tax Stamp will be prohibited. The first phase of the Scheme was implemented earlier in 2019, but the FTA postponed its enforcement due to the unexpected outbreak of the Coronavirus. Now, as the UAE has successfully contained the COVID-19 shocks, the FTA has reinforced the DTS Scheme.

Why the FTA Enforce the Digital Tax Stamp Scheme?

The DTS scheme represents the UAE government’s efforts to comply with the WHO Framework Convention on Tobacco Control (WHO FCTC). The WHO FCTC aims to reaffirm the right of all people to the highest standards of health. In line with the FCTC principles, the DTS Scheme ensures effective price and tax measures to curb the demand for tobacco products.

Apart from that, the DTS scheme strengthens FTA’s power to control and collect taxes on the tobacco products sold in the UAE market. The DTS scheme enables FTA to regulate the imported or locally manufactured tobacco products including e-cigarettes, water pipe tobacco etc. The DTS also helps the FTA to track and curb the illicit trade of tobacco products in the market.

What Businesses Should do Now?

The businesses that deal with tobacco products need to take the FTA announcement on a serious note and make the required arrangements on an immediate basis. The tobacco companies need to make arrangements to facilitate their use. One viable way for the companies is to export the unmarked tobacco products outside the UAE.

Related: A Guide to Excise Tax Reporting Requirements in the UAE Designated Zones

Addressing Major Concerns of the Tax Stamp Enforcement

As soon as the FTA issued the public clarification on the DTS Scheme, doubts regarding the implementation popped up from several corners. The following were the major concerns raised:

 1.Impact on Excise Tax Rates

The FTA has clarified that the DTS scheme enforcement won’t have any potential impact on any of the Excise Tax rates currently in force in the UAE. Businesses who need more clarity on this issue must consult with the best excise tax consultants in Dubai, UAE.

2. Impact on Previously Implemented Steps

Before it postponed the implementation of the decision, the FTA had already implemented certain steps related to the DTS Scheme. In 2019, the businesses were able to order for the stamps to be applied on waterpipe tobacco and e-cigarettes. Also in 2020, the FTA has stopped permitting the import of tobacco products without DTS. The FTA has clarified that these two steps would remain in force in light of the new decision. Customs authorities will carry out their routine checks to ensure that the imports comply with these decisions.

3. Consequences of Non-Compliance

The FTA has listed a set of administrative penalties as part of the “Marking Tobacco and Tobacco Products Scheme”. The following are the consequences of non-compliance and the relevant penalties:

  1. AED 50,000 penalty if a person possesses or deals with e-cigarettes or water-pipe tobacco that doesn’t bear a DTS. Additionally, such persons have to incur 50% of the Excise Tax due on the Excise Goods.
  2. AED 25,000 for persons who knowingly allow their premises for the sale of unmarked tobacco products. They will be subjected to AED 50,000 fine if the violation is repeated the second time.
  3. AED 25,000 penalty will be slapped on persons who fail to affix Digital Tax Stamps to tobacco products as specified by the FTA. AED 50,000 fine is applicable in case of repeating the offence.

Get Reliable Advice from Excise Tax Consultants in Dubai

Tobacco manufacturers or importers are left with a short time to comply with the FTA decision on DTS Scheme. The businesses require the advice of registered tax consultants in Dubai, such as Jitendra Chartered Accountants (JCA) to ensure compliance with the FTA norms. JCA’s team is composed of highly qualified tax agents in Dubai who provide reliable advice on any queries related to the DTS scheme or excise tax in general. JCA assists the companies in excise tax registration and excise tax return filing as well.

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