Digital Tax Stamps on Tobacco Products in UAE

A New Step In Excise Tax System

The Digital Tax Stamp system was introduced in 2019 by the Federal Tax Authority (FTA) of the UAE. The Digital Tax Stamp is in news again as the import of waterpipe tobacco or electrically heated cigarette pipes not marked with Digital Tax Stamps will be banned across the UAE as of March 1, 2020.

The initiative of banning the import of waterpipe tobacco not marked with digital tax stamp is in line with the second phase of FTA’s ‘Marking Tobacco and Tobacco Products Scheme’.

What is the Digital Tax Stamp System?

The Digital Tax Stamp system is a tax managing scheme introduced by the FTA in August 2019. The new excise tax scheme mandates that tobacco manufacturers and stakeholders are required to comply with FTA’s improved standards when they import and sell tobacco products in the UAE market.

How Does Digital Stamp Work?

In line with the new excise tax system, the tobacco manufacturers are required to mark their products with the Digital Tax Stamp at their production facility after the packaging, if the production is done locally. The stamp must be put before importing if the products are imported.

The FTA has imparted special training to inspectors of the Departments of the Economic Development and Customs Agencies across the emirates. The authority has developed special mechanisms to ensure that the tobacco products in circulation bear the Digital Tax Stamps.

The Tax Stamps have been registered in the FTA database and are embedded with data, which can be read with the help of a dedicated device. Using the device, the inspectors of the Departments of the Economic Development and Customs employees can ensure that all the pending taxes have been settled.

Salient Features of The Digital Tax Stamp System

FTA’s ‘Marking Tobacco and Tobacco Products Scheme’ is a new milestone in the excise tax system in the UAE. With the new tax managing program, the FTA is hoping to achieve the following goals:

• The scheme is likely to safeguard the consumers from commercial fraud and low-quality products
• It will enable the FTA to tackle tax evasion in an efficient manner
• It empowers the FTA to collect and control taxes on all imported or locally made tobacco products sold in the UAE market
• The scheme allows the FTA to monitor and curb the sale of illicit products in the market as relevant authorities are entrusted with analyzing and auditing the supply chain

Major Milestones Achieved 

• 1 January 2019: all the importers and the cigarette producers in the UAE were allowed to order stamps for application
• 1 May 2019: The FTA prohibited any company to import cigarette products without a digital tax stamp
• 1 August 2019: All cigarette products to be imported or produced or sold in the UAE market need to have the Digital Tax Stamp on them with end-to-end traceability. However, the FTA allowed products with a Digital Tax Stamp without end-to-end traceability to stay in the market if they are legitimately imported or produced between 1 May and 1 August 2019

What Happens if You Fail to Comply with the Digital Tax Stamp System?

In accordance with the FTA decision no. 33 of 2019 on violations of procedures to mark Designated Excise Goods, penalties await those who fail to place the Digital Tax on the packaging of tobacco products. Some of the penalties on violation of Digital Tax Stamps regulation are as follow:

• A penalty of AED 50,000 plus 50% of the amount of excise tax due, will be collected from a person possessing or supplying unmarked Designated Excise Goods.
• A penalty of AED 25,000 to AED 50,000 will be slapped on those people who allow the sale of unmarked Designated Excise Goods in their facilities. It will be AED 25,000 for the first instance of violation and 50,000 for repeated violations.
• A penalty of AED 50,000 plus 50% of the amount of excise tax due will be levied if a person modifies or prints over Digital Tax Stamps fixed on Designated Excise Goods.
• In the event of failing to inform a transfer of Designated Excise Goods, a penalty of AED 20,000 is levied for every time the breach is committed.

You Need to Register For Digital Tax Stamp If You Are:

• A UAE based or international cigarette producer who imports products into the UAE for domestic sale or for duty-free outlets like airports and ports.
• An officially licensed importer who will purchase cigarette products in bulk from an international or domestic producer to sell or distribute in the UAE market or duty-free outlets
• A Distributor or Supply Chain Agent or Warehouse Keeper who receives the imported goods for sale in the UAE market or duty-free outlet.

Jitendra Chartered Accountants (JCA) are registered VAT/Tax agents in UAE. JCA has helped hundreds of businesses across the UAE to understand excise tax-related obligations and requirements to comply with local laws. Enquire now to register a business with Excise Tax in UAE.