UAE Excise Duty [3]: Excise Tax Base Price I Price of Goods at which Excise Duty is Applicable

In our comprehensive discussion on excise duty, we underscored two key elements critical for its effective application. Firstly, the importance of accurately identifying excise duty liable products and classifying them correctly to establish the suitable excise rate. Secondly, we stressed the significance of establishing the base price accurately to guarantee the proper application of excise duty. This article concentrates on explaining the concept of excise price and detailing the methodology for its calculation.

Multiple approaches exist for computing the excise price, and the methodology employed is contingent on the nature of the excisable goods being assessed.

According to the general guideline, the excise price is determined as the greater value between the price specified by the Federal Tax Authority (FTA) for excisable goods or the designated retail selling price after deducting any embedded excise tax. The designated retail price is determined as the higher value between the price computed by the importer or producer and the average retail price.

To determine the average retail selling price of excise goods over the past year, first, identify the various prices at which these goods were sold in the market to the end users. If any selling price includes an excise tax, deduct this tax to find the tax-exclusive selling price. Next, for each distinct selling price observed, ascertain the total quantity of excise goods sold at that price. Multiply the quantity sold by the selling price to derive the market revenue generated by that price point over the 12-month period. Aggregate these revenue figures across all prices to obtain the total market revenue for excise goods over the year. Calculate the average tax base of the goods by dividing the total market revenue by the quantity of goods sold in that period. Then, apply the relevant tax rate to this average tax base to determine the notional excise tax on the goods. Finally, sum the results from the previous steps to compute the average retail selling price of the excise goods.

The primary difficulty in implementing the standard guideline lies in determining the designated retail price, which necessitates the computation of the average retail price. Furthermore, when adhering to this rule, it is essential to consider the actual price being paid by the final consumers only. Transactions involving excisable goods sold to wholesalers or corporate clients, such as supplying carbonated drinks to hotels, should not be factored in as they do not represent the retail price for end users.

In situations where the retail price of excisable goods is unavailable because these are not being sold to end consumers but utilized by excisable persons for manufacturing excisable products; or such goods are being imported and then reexported etc. their designated retail selling price is the price that is set by the importer or producer of these excise goods before any discounts or offers are applied. For example, powder, gel, concentrate, etc. are used to manufacture excisable products, so its designated retail sales price will be the price ascertained by the importer or manufacturer.

Given that the end product is subject to excise duty, or the excisable goods are being imported and reexported, any duties paid by the manufacturer and/or importer for excisable materials like powder, gel, concentrate, etc., used in the production of excisable goods, will be eligible for refund; and it will be refunded or adjusted in the return, but it may have cash flow implications generally due to timing differences.

Within the excise tax guide legal document, a specific methodology is outlined for determining the excise price of tobacco products. According to this method, the excise price for tobacco items should not fall below Dhs 0.4 per cigarette and Dhs 0.1 per gram of waterpipe tobacco, ready-to-use tobacco, or similar tobacco products, as stipulated by the FTA.

The excise tax is determined by applying a set percentage to the excise price derived from the methodologies outlined above. The excise price includes all supplementary taxes or duties imposed on the goods, with the exception of any relevant VAT. Consequently, the revised selling price of the goods will consist of the tax base plus the corresponding tax amount at the specified rate (50% or 100%), along with VAT.
The excisable persons are required to diligently calculate the right excise price and apply the excise tax correctly to arrive at the price before VAT of the excisable products.