The introduction of excise tax and VAT in UAE was almost made at the same time between 2017-2018. Although both of these taxes are forms of indirect tax they do have some major differences. Note that these taxes are a source of additional revenues for the UAE government.
4 Differences Between Excise Tax and VAT
In the case of excise tax, the purpose mainly focuses on reducing the consumption of unhealthy goods. Furthermore, it increases the government revenue as well which they can use for public welfare.
The value-added tax focuses on providing the government with a new source of income. The government can further use this income to provide the public with high-quality services.
2. Applicable Goods and Services
Excise tax normally applies to certain products and services which include carbonated, energy drinks, and tobacco. Moreover, it also applies to any drink that provides mental or physical stimulation such as caffeine, ginseng, etc.
VAT charges are applicable on most of the products and services in UAE. Financial services, residential buildings, and bare land are some of the services which are not liable to value-added tax.
3. Imposition of Various Rates
The rates of excise rate can vary depending upon the product or the service you’re purchasing. For example, the rate is 50% for carbonated drinks and 100% for energy drinks and tobacco.
There is a fixed standard rate for VAT in the UAE which is 5%. In a different scenario, zero-rated supplies (0% VAT) are liable to certain products which can be the export of goods, international transportation services, etc.
4. Liable Business Registration
All those businesses dealing with the import or manufacturing of goods levied excise tax are applicable to register for excise tax. Any business that owns taxable goods but is unable to prove it will also register for excise tax.
All tax-registered businesses in UAE whether it’s from Mainland or Freezone are liable for the standard VAT charges. If the UAE Cabinet declares any freezone area as a designated zone, then that freezone area shall be tax-free.
Conclusion
Excise tax and VAT are two different tax systems in the UAE that bring additional responsibilities to businesses. Sometimes people find it difficult to adjust to these different tax systems. Therefore, it is advisable to understand its differences to assist you in dealing with it.
