Postponement of the Implementation of the Final Step of Phase Two of the Marking Tobacco and Tobacco Products Scheme - EXTP006

EXTP006

Excise Tax Public Clarification

Postponement of the Implementation of the Final Step of Phase Two of the Marking Tobacco and Tobacco Products Scheme (“the Scheme”)

Issue

This Public Clarification provides further guidance and clarification on the Federal Tax Authority's ("FTA") decision to postpone the final step of phase two of implementation of the Digital Tax Stamps ("DTS") scheme for water pipe tobacco (known in Arabic as 'Mu'assel") and electronically heated cigarettes, which involves a ban on supplying, transferring, storing, and the possessing of the above mentioned Excise goods that do not carry DTS in the UAE until 1 January 2021 ("the Decision").

For the purposes of this Public Clarification, water pipe tobacco and electronically heated cigarettes will also be referred to as 'Designated Excise Goods'.

Article 2(c) of Cabinet Decision No. 42 of 2018 on Marking Tobacco and Tobacco Products along with Article 1(4) of Federal Tax Authority Decision No. 2 of 2019 on Implementing the Marking Tobacco and Tobacco Products Scheme prescribed that starting from 1 June 2020, it will not be permissible to supply, transfer, store or possess Designated Excise Goods in the UAE. However, due to the precautions implemented to curb the spread of the Coronavirus (COVID-19), it may not have been possible for businesses to use or sell unmarked Designated Excise Goods due to business closures.

This Public Clarification confirms that the Decision will not affect the previously implemented steps of phase two of the scheme nor the Excise Tax rates. In other words, Designated Excise Goods imported into the UAE will be required to carry valid DTS stamps.

Summary

The FTA has issued a decision to postpone the implementation of the final step of phase two of the DTS scheme applicable to water pipe tobacco and electronically heated cigarettes. This means the ban on the supply, transfer, storage, and possession of Designated Excise Goods that do not carry DTS in the UAE will be postponed until 1 January 2021.

Detailed analysis

Why did the FTA postpone the implementation of the ban on supplying, transferring, storing, and possession of Designated Excise Goods in the UAE?

The FTA understands that in the light of the strict precautionary measures to curb the spread of COVID-19, which include the temporarily closures of cafés and restaurants and banning them from serving waterpipes, certain producers, distributors, importers and stockpilers of waterpipe tobacco and electrically heated cigarettes may not be able to meet the previously set deadlines. The FTA recognises that it may not be possible to use or sell the unmarked stock by 1 June 2020, and therefore, the FTA has decided to postpone the implementation of the last step of phase two until 1 January 2021.

Will the Decision impact any of the previously implemented steps of phase two of the Scheme?

The following steps of phase two have been implemented:

1 November 2019 - Importers and UAE-based manufacturers were able to order stamps for application to the pack of water pipe tobacco and electrically heated cigarettes products.
1 March 2020 - No water pipe tobacco or electrically heated cigarettes products without a DTS were permitted to be imported into the UAE.

The implementation of the above-mentioned steps will remain in force and are not affected by this Decision. Customs Departments will be undertaking their usual checks on such products to ensure compliance with these rules is maintained.

In other words, the Decision will not affect the ban of importing Designated Excise Goods which do not carry DTS into the UAE.

How will this Decision affect businesses that supply, transfer, store, and possess Designated Excise Goods?

This Decision provides businesses with the opportunity to use any unmarked Designated Excise Goods that they may have. This is in recognition of the fact that many businesses have been temporarily closed, and therefore, unable to sell their products in advance of 1 June 2020 in the volumes they may have originally planned. Businesses will now have until 1 January 2021 to either use unmarked stock, or make alternative arrangements for its use (e.g. by exporting it outside the country). By 1 January 2021, all such goods held in free circulation in the UAE must be marked with a valid DTS, and it will be prohibited to supply, transfer, store or possess Designated Excise goods that are not marked.

Will the implementation of the Decision affect the any of the Excise Tax rates?

The implementation of this Decision does not affect any of the Excise Tax rates currently implemented in the UAE.

This Public Clarification issued by the FTA is meant to clarify certain aspects related to the implementation of the Federal Decree-Law No. 7 of 2017 on Excise Tax, Cabinet Decision No. 42 of 2018 on Marking Tobacco and Tobacco Products and Federal Tax Authority Decision No. 2 of 2019 on Implementing the Marking Tobacco and Tobacco Products Scheme.
This Public Clarification states the position of the FTA and neither amends nor seeks to amend any provision of the aforementioned legislation. Therefore, it is effective as of the date of implementation of the relevant legislation, unless stated otherwise.