Indirect Tax Alert | 31 May 2017

Saudi Arabia officially releases Excise Tax Law in Official Gazette

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Executive summary

The Saudi Arabia Cabinet has approved the Excise Tax Law, and released the legislation under Royal Decree M/86 dated 23 May 2017 (27-8-1438H). The Excise Tax Law has been published in the Official Gazette, UM AL QURA by way of Circular Number 4672 dated 26 May 2017 (30-8-1438H). The law will become effective 15 days after the date of publication in the Official Gazette.

The decree authorizes the Prime Minister, heads of independent bodies and other related institutions to take all adequate steps to implement the Excise Tax Law in Saudi Arabia. The competent judicial authority to deal with any litigation under the Excise Tax Law shall be the appellate committees as stipulated under the Income Tax Law.

Detailed discussion

Excise tax rates

The Gulf Cooperation Council (GCC) Member States have agreed to impose Excise Tax rates of 50% on soft drinks and 100% on energy drinks, tobacco and tobacco products. The detailed rates of tax will be provided in the bylaws to the Excise Tax Law which is scheduled to be released within 15 days from the publication of the Excise Tax Law in the Official Gazette.

Excise tax compliance

Manufacturers and importers of excisable goods will be required to register with the General Authority for Zakat and Tax (GAZT) for Excise Tax purposes. Businesses that are under the scope of Excise Tax that fail to register and comply with the guidance issued by the GAZT will be considered as tax evaders and subject to penalties.

Key features

The updated Saudi Arabian Excise Tax Law comprises 30 Articles covering:

  • Taxation, tax due and tax suspension conditions
  • Registration for Excise Tax purposes
  • Conditions for licensing a tax warehouse
  • Tax return and payment
  • Tax refund
  • Inspection and seizure
  • Tax evasion and penalties
  • Sanctions and consideration of disputes

Penal provisions

The regulation specifies the fines and penalties that will be imposed for the following violations:

1. Tax avoidance – a penalty of not less than the value of the tax due and not more than three times the value of the excise goods subject to tax avoidance.

2. Late declaration – a fine not less than 5% and not more than 25% of the value of the tax that the person should declare in the tax return.

3. Monthly late payment of taxes – the penalty shall be equal to 5% of the tax due for each month or part of the month.

4. A financial penalty not exceeding SAR50,000 for any person that:

  • Prevents or hinders the Authority’s officers from performing their duties.
  • Fails to present the information requested by the Authority.
  • Violates any other provision in the Excise Tax Law and the executive regulations.

5. In the event of a repeat of similar violations within three years from the initial violation, the Authority may double the fine, or suspend the license of the business for a period of not more than six months.

GAZT initiative to register companies in ERAD under the Excise Tax regime

The GAZT has initiated the registration process for companies on its electronic filing system, ERAD. Only those companies that are involved in the “production” or “importing” of excisable products are required to be registered in the ERAD system.

Accordingly, all excise taxpayers can now login to the ERAD system and initiate the registration online. The ERAD system automatically pre-populates all the information of the taxpayer, if already available with the GAZT, (i.e., the company registration details including commercial registration number and address). Additional details that are required to be provided in the ERAD system are as follows:

  • IBAN number
  • Contact details of the company representative
  • Nature of the company’s business activity requiring registration (manufacturing or importation of excisable goods)
  • Types of excisable products that are required to be registered

Implications

It is imperative for businesses operating in Saudi Arabia as an importer or manufacturer of excisable goods, to take immediate steps to register with the GAZT and become compliant with the Excise Tax Law.

Businesses should also initiate an Excise Tax impact assessment immediately in order to determine the impact of excise tax on their operations. The impact assessment should be used to develop a clear plan as to the steps that must be taken in order to be Excise Tax compliant.

For additional information with respect to this Alert, please contact the following:

Ernst & Young & Co (Public Accountants), Riyadh
  • Asim Sheikh
    +966 11 215 9876
    asim.sheikh@sa.ey.com
  • Ahmed Abdullah
    +966 11 215 9439
    ahmed.abdullah@sa.ey.com
  • Ahmed Hassanin
    +966 11 273 4740
    ahmed.hassanin@sa.ey.com
  • Amr Farouk
    +966 11 215 9898
    amr.farouk@sa.ey.com
  • Dino Saavedra
    +966 11 215 9898
    dino.saavedra@sa.ey.com
  • Franz-Josef Epping
    +966 11 215 9478
    franz-josef.epping@sa.ey.com
  • Hosam Abdulkareem
    +966 11 215 9805
    hosam.abdulkareem@sa.ey.com
  • Imran Iqbal
    +966 11 215 9807
    imran.iqbal@sa.ey.com
  • Mohammad Najjar
    +966 11 215 9898
    mohammad.najjar@sa.ey.com
  • Nitesh Jain
    +966 11 215 9842
    nitesh.jain@sa.ey.com
  • Parvez Maqbool
    +966 11 215 9849
    parvez.maqbool@sa.ey.com
  • Sohail Nini
    +966 11 215 9825
    sohail.nini@sa.ey.com
  • Vladimir A Gidirim
    +966 11 215 9455
    vladimir.gidirim@sa.ey.com
  • Yousef Eldaw
    +966 11 215 9877
    yousef.eldaw@sa.ey.com
Ernst & Young & Co (Public Accountants), Al-Khobar
  • Syed Farhan Zubair
    +966 13 849 9522
    farhan.zubair@sa.ey.com
  • Ali Sainudheen
    +966 13 849 9550
    ali.sainudheen@sa.ey.com
  • Hatem Ghobara
    +966 13 849 9524
    hatem.ghobara@sa.ey.com
  • Javed Aziz Khan
    +966 13 849 9521
    javed.aziz@sa.ey.com
  • Jude deSequeira
    +966 13 849 9520
    jude.desequeira@sa.ey.com
Ernst & Young & Co (Public Accountants), Jeddah
  • Craig McAree
    +966 12 221 8501
    craig.mcaree@sa.ey.com
  • Ayman Abu El Izz
    +966 12 221 8400
    ayman.abueIzz@sa.ey.com
  • Rolf Winand
    +966 12 221 8400
    rolf.winand@sa.ey.com
  • Diendo M Dupal
    +966 12 221 8315
    diendo.dupal@sa.ey.com
  • Imran Ahmed
    +966 12 221 8414
    imran.ahmed@sa.ey.com
  • Irfan Alladin
    +966 12 221 8510
    irfan.alladin@sa.ey.com
  • Mohammed Desin
    +966 50 006 7280
    mohammed.desin@sa.ey.com
Ernst & Young, Doha, Qatar
  • Finbarr Sexton
    +974 4457 4200
    finbarr.sexton@qa.ey.com
Ernst & Young Middle East, Dubai Branch, United Arab Emirates
  • David Stevens
    +971 4 332 4000
    david.stevens@ae.ey.com
Ernst & Young LLP, Middle East Tax Desk, Houston
  • Gareth Lewis
    +1 713 750 1163
    gareth.lewis1@ey.com

EYG no. 03494-171Gbl