Excise tax is imposed on goods that are harmful to human health and to the environment, as well as on luxury goods. It includes soft drinks, energy drinks and tobacco and its derivatives. It is levied at various stages in the supply chain.
Any person who imports or produces excise goods or who holds excise goods under a tax suspension arrangement is required to pay excise tax. The tax is due on the date of release of the excise goods for consumption. Excise tax is ultimately shifted to the buyer by raising the sales price.
Businesses that are engaged in the export of excise goods, outside the KSA, can apply for an excise tax refund. Refund is also possible in case a tax return has been filed and the concerned excise tax due has been paid, while the goods are being incorporated to produce a new excise good. The value of excise tax paid on the original goods is refundable, but excise tax becomes due on the new excise good when it is produced (e.g., syrup which is used to make soft drinks).
Rates and taxable amount
The applicable excise tax rates are 50% for soft drinks, and 100% for energy drinks, tobacco and tobacco products. An exemption is applicable in a few cases, like for diplomatic and consular bodies. The tax is calculated on the RSP. GAZT has a list of standard retail sales prices for all excise goods. If the value of the RSP is lower than the price listed, the excise tax is then calculated on the listed RSP.
VAT and excise tax
VAT and excise tax are both indirect taxes, which means that both taxes are collected by the seller who pays the tax to the government while the tax is shifted to the buyer by raising the sales price. Despite this similarity the taxes are still different in the following way:
- Excise tax is imposed on specific goods and limited to a certain part of the supply chain, whereas VAT is imposed on most goods and services and at each stage of the supply chain. As a result more transactions qualify as a taxable transaction for VAT purposes than for excise tax.
- By default all suppliers can deduct input VAT. Refund of excise tax is only allowed in two specific cases (exports of the excise goods and when using excise goods to produce a new taxable excise good).
- The rate for excise tax (100% or 50%) is higher than the VAT rate (max. 5%).
- For excise goods the GAZT provided a list of the RSP’s, while this list is not relevant for VAT. The taxable amount for VAT is the value of the supply, which includes all the expenses imposed by the supplier to the customer.
- Excise tax is part of the VAT taxable amount, while VAT is not part of the excise taxable amount.