The General Authority of Zakat and Tax (“GAZT”) of the Kingdom of Saudi Arabia (“KSA”) announced recently that it will start applying a 50% Excise Tax on Sugar Sweetened Beverages (“SSBs”) and a  100% Excise Tax on electronic devices and equipment used for smoking, as well as the liquids used in electronic devices and equipment used for smoking.

The amended Excise Tax Implementing Regulations have been published in the Official Gazette on 15 May 2019, and enters into force with immediate effect, with the exception of the Excise Tax on SSBs, which will await a further decision by the GAZT Chairman. A GAZT spokesman has informally anticipated that the Excise Tax on SSBs is expected to take effect from 1 July 2019.

Sugar Sweetened Beverages (“SSBs”) manufacturers and importers have already been notified of the requirement to prepare themselves ahead of the application of the 50% Excise Tax on SSBs. The preparation includes registration for Excise Tax purposes for non-registered SSBs manufactures and importers, as well as the amendment of the existing registration for previously registered businesses.

The introduction of Excise Tax on SSBs and other Tobacco related products brings a significant change to all businesses that import, manufacture or trade in those products in KSA.

Entities trading in electronic devices and equipment for smoking, and their liquids need to consider the immediate effect of the new tax on those products and how this might impact their business. Businesses are also required to monitor further Excise Tax developments including any additional requirements or further guidelines regarding the definition of SSBs and other important clarifications on how the new regime will work. Businesses are encouraged to assess the compliance requirements of the expansion of the existing Excise Tax regime and the impact on pricing through their supply chains. Businesses will also need to ensure compliance with the expected transitional rules.

List of Excise goods

Articles (2) and (3) of the amended Implementing Regulations cover the following products (with their respective rates):

• Tobacco (100%)
• Energy drinks (100%)
• Carbonated drinks (50%)
• Sugar Sweetened Beverages – “SSBs” (50%) – New
• Electronic devices and equipment used for smoking, and their equivalents (100%) – New
• Liquids used in electronic devices and equipment used for smoking, and their equivalents (100%) – New

Although the details that further clarify the definition of the new Excise goods have not been made publicly available, it is anticipated that additional information will be provided to businesses.

The Excise Tax is expected to apply to importers, ‘stockpilers’ and local producers of the Excise goods.

Transitional provisions

Article (60) of the amended Implementing Regulations stipulate the transitional provisions required to be addressed by the newly liable taxpayers. The amended Implementing Regulations include previously existing measures, as well as additional considerations, summarised as follows:

Previously existing measures

Similarly to the original Implementing Regulations, only Excise goods that are:

1. Not placed under a tax/customs suspension arrangement
2. Not owned by a Government entity
3. Intended to be used in the course of business

will be liable to the Excise Tax upon the date of implementation.

The Excise goods will be deemed as “used in the course of business” if their value exceeds SAR 60,000.

Persons holding Excise goods, as described above, by the date of implementation, will require to submit a transitional return and pay the Excise Tax due within 45 days of the date of implementation.

Additional considerations

The amended Article (60) stipulates that any changes arising in Laws, Decisions or Agreements on the Excise goods, their rates or their tax base, will require to apply the same transitional measures as covered in the previous section.

In case the changes lead to an increase in the tax rate or the tax base, but not on the products subject to Excise Tax, the Excise goods will be deemed as “used in the course of business” if the value of the increased Excise Tax due exceeds SAR 20,000.

Should the GAZT reject the tax warehouse application submitted by a taxpayer, the deadline to submit the transitional return will start on the date of notification of the rejection of the application.

Other amendments

In addition to the above, the GAZT has introduced other changes to the Excise Tax Implementing Regulations covering the determination of the Retail Sales Price (RSP), administrative measures with regards to the payment process, registration and refunds, as well as tax warehouse registration considerations.

For a deeper discussion of how this development might affect your business, please contact:

Mohammed Yaghmour, KSA & Egypt Tax and Zakat Leader
Tel: +966 (2) 610 4400 Ext: 2228
E-Mail: mohammed.yaghmour@pwc.com

Image source: unsplash.com