In many countries across the world, a focus shift from income taxes to consumption taxes has taken place over the last several years. Governments are reforming direct taxes and decreasing corporate tax and personal income tax rates, while searching for new revenue via indirect taxes, such as the value-added tax (VAT) and excise taxes. Governments are using excise taxes to sustain tax revenues in a world of changing monetary, fiscal and trade policies and to cover external costs related to the use of certain goods and services.
Excise taxes are one of the oldest taxes and have always been popular with governments because they are a major revenue-generator. Recently, what’s considered an excisable good has expanded beyond the traditional types of excise goods (such as alcohol, tobacco and oil products) that formed the cornerstones of excise taxes. The influence of excise legislation is now extending to ever-more sectors, thereby impacting more and more businesses and changing the excise landscape.
In this article, the latest excise tax trends in the EMEIA region are highlighted. Some of these trends may be challenging for businesses due to new compliance, reporting and other requirements.
One of the most important excise developments relates to the introduction of a general framework for excise taxation by the Member States of the Gulf Cooperation Council (Bahrain, Oman, Qatar, Saudi Arabia, Kuwait and the United Arab Emirates).
The GCC Member States have introduced excise taxes by signing the Common Excise Tax Agreement of the GCC in November 2016, transposing this common framework into their respective national legislations. The agreement allows the GCC Member States to introduce excise duties on tobacco (100%), energy drinks (100%) and carbonated soft drinks (50%), which implies that a market of approximately 54 million consumers is now subject to new excise taxes.
The rationale of many excise taxes is to tax the consumption of goods that are considered to be “harmful” goods for the environment (e.g., fossil fuels) or for public health (e.g., tobacco products and alcohol). In order to raise awareness of the health consequences of sugar consumption, various countries have introduced a so-called “sugar tax” on soft drinks and energy drinks over the past years.
Belgium has recently increased the excise taxes on soft drinks with added sugar (sweetened drinks). As of April 2018, the United Kingdom (UK) introduced an excise tax on soft drinks and other products containing high levels of sugar (e.g., a soft-drinks-industry levy). This implies that companies may need to register for the tax if they produce or package dutiable drinks (insofar as they are not small producers).
In Ireland, a tax was introduced starting 1 May 2018 on sugar-sweetened drinks with a sugar content of 5 grams or more, per 100 milliliters. The tax is imposed on the first supply of a sugar-sweetened drink in Ireland and covers drinks that have been brought into or produced in Ireland by a supplier and are being supplied by the producer or importer. The legislation contains provisions to determine what defines “supply” and “supplier” for tax purposes, however, it is likely that most producers, distributors, wholesalers, retailers and importers will be impacted.
As indicated earlier, the GCC Member States have recently introduced excise taxes on soft drinks and energy drinks.
New excise taxes are often introduced as instruments to influence consumer behavior, such as the above-mentioned sugar taxes or carbon taxes to address pollution. Other products, such as plastic bags and electronic cigarettes, are also increasingly targeted by many excise tax authorities. In addition to imposing new excise taxes, governments are also using tax policy measures to favor alternatives to taxed products that may be considered less “harmful” to health or the environment (e.g., fully electric cars, low alcohol beers and unsweetened drinks). These measures include tax incentives for innovation and differentiated tax rates that apply reduced excise tax rates or exemptions to qualifying goods, thereby influencing consumer choice through price. Governments have many justifications for such taxes, but the growing enthusiasm for using taxes to shape behavior has broader ramifications for businesses.
One example of the expanding scope of excise taxes is the new tax on flights in Sweden, an environmental-related tax that seeks to reduce carbon footprint. The Swedish Parliament passed the bill introducing a flight excise tax in November 2017, which came into effect 1 April 2018. As a result, all airline companies subject to this tax are required to register via a special registration form and to report and pay a flight tax. Next to the registration requirement, there are also reporting and payment obligations to follow.
E-commerce is evolving at a rapid pace, and businesses in all sectors are exploring the possibilities of trading via the internet. Among those businesses are those dealing with excise goods, particularly alcoholic beverages.
Although the main excise provisions are harmonized throughout the EU (including excise product definitions and minimum excise tax rates), significant differences in the applicable excise tax rate still exist for various EU Member States. In the EU, the excise taxes are principally payable in the ultimate Member State of consumption. To ensure excise taxes are paid in the appropriate Member State, intra-EU transactions of excise goods are heavily monitored by the proper excise authorities.
For regular or bigger shipments of excise goods, in most cases the Excise Movement Control System (EMCS) is used to monitor and trace the movements of excise goods under excise-tax suspension between different license holders within the EU. As this procedure can only be applied between excise license holders, it is in many cases not fit to deal with e-commerce, which typically entails a big number of smaller shipments dispatched to a large number of different customers.
For these e-commerce shipments, specific procedures like the distance-selling regime (in the case of sales to private consumers) and the holding of excise goods outside the suspension regime (in the case of other types of sales) are to be applied. Both procedures imply that excise taxes are paid in the Member State of dispatch and that strict compliance requirements are followed. However, both procedures are very burdensome, and unfortunately, in many cases they are implemented differently in various EU Member States. Therefore, a one-size-fits-all procedure for dealing with e-commerce within the EU currently does not exist. However, the EU’s European Commission is looking into the current rules to facilitate future e-commerce sales of excise goods.
The outcome of the Brexit negotiations is still unclear, and there is a high level of political uncertainty. It is clear, however, that the UK will leave the EU on 29 March 2019 and that a transition period will be applicable until 31 December 2020. During this transitional period, the excise regime and excise tax will likely continue to apply as in the current pre-Brexit scenario.
In practice, the current movements of excise goods under the excise-suspension regime to and from the UK will become import and export transactions after Brexit. For movements from EU Member States to the UK, excise supervision will end at the place of exit from the EU and will require an export declaration and an electronic active-delivery report.
For excise suspended movements within the UK, it is likely that EMCS or a similar system will be maintained. This position is also shared by the various sector federations.
Next to the movement aspect, the UK will be able to determine the excise duty tariffs independently and will thus not be bound anymore by the minimum EU excise duty rates. However, it is unlikely that the UK will downsize the excise duty tariffs, as this is an important source of income for HM Revenue and Customs.