Introduction to Excise Tax

Excise Tax is an indirect tax imposed by the Kingdom on certain goods harmful to health or the environment. Its goal is to reduce the consumption of these products and protect public health, while also providing revenue for the state to be used in service development.

The application of Excise Tax in Saudi Arabia began on June 11, 2017, by a decision from the Zakat, Tax and Customs Authority “ZATCA”, and initially included tobacco products, soft drinks, and energy drinks.

Tax Rates on Tobacco and Beverages

Current tax rates:

  • Tobacco products: 100% of the product price (cigarettes, moassel, cigars, etc.)
  • Energy drinks: 100% of the product price
  • Soft drinks: 50% of the product price

This means that when purchasing a pack of cigarettes priced at 20 SAR, a tax of 20 SAR is added, making the final price 40 SAR. The same applies to energy drinks: a drink priced at 5 SAR becomes 10 SAR after tax.

Who Bears the Responsibility for the Tax?

The responsibility falls on manufacturers and importers of tobacco and beverage products. They are obligated to register with ZATCA, submit tax returns, and pay the due tax. However, ultimately, the consumer pays the tax as part of the product price.

Tax Stamps on Tobacco

One of the key methods used by ZATCA to monitor tobacco products is tax stamps. Every tobacco product sold in the Saudi market must carry an official tax stamp proving that the tax has been paid. Products without this stamp are considered smuggled and in violation of the law.

Inspection teams conduct continuous patrols of shops and markets to detect any un-stamped tobacco products and impose strict penalties on violators.

Penalties and Sanctions

Violations related to Excise Tax include:

  • Failure to register with ZATCA: a fine of up to 50% of the due tax amount
  • Failure to submit the tax return on time
  • Selling tobacco products without tax stamps
  • Tax evasion: penalties include imprisonment and large financial fines

ZATCA conducts thousands of inspection visits annually on commercial stores to ensure compliance and offers incentives for reporting violations, up to 2.5% of the fine amount (with a maximum of 1 million SAR).

Frequently Asked Questions

Q: Does Excise Tax include sweetened beverages (sugary drinks)?
A: As of now, Excise Tax in Saudi Arabia applies only to tobacco (100%), soft drinks (50%), and energy drinks (100%). Other sweetened beverages are not currently subject to this tax.

Q: Is the tax on tobacco different from Value Added Tax (VAT)?
A: Yes, the tax on tobacco is an excise tax at 100%, added to the product price before adding VAT (15%). This means the product is subject to two types of taxes.

Q: How do I report a tax violation?
A: You can report via the ZATCA website (zatca.gov.sa) or the ZATCA mobile app, and you may receive a reward of up to 2.5% of the fine amount.

Q: Does this include electronic tobacco (e-cigarettes and vapes)?
A: Yes, e-cigarettes and heated tobacco products are also subject to the 100% Excise Tax.

Q: When is the tax paid?
A: Manufacturers and importers must submit a monthly tax return to ZATCA and pay the due tax within 30 days from the end of the tax month.

Source: Zakat, Tax and Customs Authority (ZATCA) (zatca.gov.sa), PwC Tax Summaries