What is Excise Tax in KSA?

The main motive behind Excise tax is not just to secure the economy but to serve as a strong tool to transform behaviors and promote overarching policy aims. It is a type of indirect tax that is generally levied on specific goods like tobacco, sugary drinks and fuel. The idea is to limit the use of products with adverse effects on health by increasing their prices to elevate better lifestyles, protect the environment and support energy initiatives. In short one can say that they act as a financial tool towards a smarter consumption of harmful products with a better future for all. Saudi Arabia’s introduction to excise tax is not just to align with international best practices but to also boost profits without depending on oil. Excise Tax in Saudi Arab rolled out in 2017 and mainly targeted harmful goods to drive better choices and improve quality of life. We will further shed light on excise tax in the Kingdom, exploring its purpose, product it covers, tax rates and compliance rules.

Understanding Excise Tax in Saudi Arabia

As we mentioned above, Excise tax is an indirect tax on the sale or production of certain goods that are Hazardous to health or environment. Differing from the direct taxes, excise taxes are generally not paid directly by consumers to the government but collected from producers, importers or distributors. But the cost is mostly passed on to the consumers in the final product price. So, one can say that businesses may be responsible for reporting or paying taxes, but the end user is the one who actually bears the financial consequence. In KSA, the General Authority of Zakat and Tax (ZATCA) is responsible to collect and enforce excise tax in Saudi Arabia, the main purpose of it is to:

• Discourage the consumption of harmful products
• Nurture healthier lifestyles and preserve public health
• Produce extra revenue for government to public service funds
• Standardize government policies with international standards
• Foster sustainable consumption through right taxation methods

Apart from that, ZATCA also include some warehouse regulations for excisable goods, according to which the products present in warehouse must be approved by authorities, they should meet specific standards, must be regularly inspected by tax authorities, and an accurate record of each good received, stored, and dispatched must be maintained. The aim of excise tax law is to provide a legal foundation for the excisable goods taxation. Although excise tax comes with new responsibilities for businesses and affects the consumer choices yet if we consider the long-term advantage on health and economic stability, they are substantial.

Scope of Excise Tax

The excise tax in Saudi Arabia is only on limited goods which are as follows:

1. Tobacco Products: A 100% of excise tax is imposed on cigarettes, cigars, and other tobacco product that falls in category
2. Energy drinks: 100% excise tax is also imposed on beverages that claim to boost energy but in fact hazardous to health it contains substances like caffeine, taurine, or ginseng.
3. Carbonated drinks: 50% of Excise Tax is imposed on carbonated drinks except for sparkling water.
4. Sweetened beverages: 50% of excise tax is imposed on drinks with artificial sugars or sweeteners
5. Electronic smoking devices and liquids: 100% Excise tax is imposed on devices like e-cigarettes or their liquids

The rate of excise tax may fluctuate according to government fiscal policies. However, this tax is mandatory and must be complied with to stay safe from any legal troubles.

Registration and Filing of Excise Tax

Businesses that manufacture, store, or import excisable goods are mandated to register with ZATCA, this registration is compulsory before executing and conducting any activity that involves these goods. To register business must:

• Sign up and create an account on ZATCA portal
• Submit all the essential paperwork like (CR number, license, product details)
• Get a tax Identification Number (TIN) and once approved receive an excise license.

Once you have got your license, you must file excise tax on monthly basis by following this process:

• File the returns through the online portal of ZATCA
• Accurately submit the quantities and values of stored goods
• Determine the payable tax as per the prescribed rates
• Make payments on time to avoid any legal obstacles

ZATCA conducts routine audits, inspections and examinations. In case of late filing or noncompliance ZATCA imposes hefty fines, suspension of excise license, seizure of non-compliance goods and even legal proceedings. This is not just damaging financially but operationally and reputationally as well. Businesses are therefore encouraged to maintain detailed records and engage in continuous compliance monitoring to stay away from any kind of legal constraints.

Economic and Social Benefits

Excise tax benefits the consumers and the economy both, as it benefits businesses through:

• Better public health outcomes due to lower consumption of these products
• Reduced possibility of non-communicable diseases like diabetes, heart disease and respiratory disorders
• Better revenue from government for development projects, education and public services
• Elevated alignment with global public health practices like the recommendations set by WHO
• Encouragement of healthier food and beverage substitutes in market as businesses modifies to shifting demands

Challenges and Criticisms

Despite of all the benefits it also comes with certain obstacles that businesses face during excise tax compliance like:

• Increased financial load on consumers with low income, who may pay higher portion of their salaries on taxed goods.
• Possibility of increase in illegal trade or smuggling of excisable products to reduce the taxation charges
• Risks of counterfeit products emerging in the market
• Compliance hurdles for small and medium businesses (SMES) that don’t have sufficient resources or skills to meet the complex regulatory demands.
• Low awareness and familiarity with local laws and understanding with some areas of the business community

To minimize these risks ZATCA is continuously working to evolve its mechanisms, increase market surveillance and offer education and guidance to businesses of all sizes.

How to Handle Compliance Challenges

To handle the challenges that comes along proactively and professionally businesses must:

• Keep up to date with the regulatory changes by subscribing to ZATCA communications
• Investing in training their internal teams like finance, legal and compliance workforce
• Utilizing the most advanced tax reporting tools and investor tracking systems to mitigate human errors.
• Set up internal procedures for audits to review excise tax processes regularly
• Look for professional advice or consultancy services when internal teams are not competitive enough specifically during audits

Smart and far-sighted planning and system integration not just mitigate the risks and avoid penalties but also ease the compliance procedure.

How SS&CO KSA Helps with Excise Tax Compliance

SSCOKSA is one of the leading professional firms in KSA who plays a pivotal role in offering accounting services to businesses operating in KSA. One of the key accounting services includes excise tax compliance. With thorough understanding and familiarity of local tax laws and industry specific challenges, SS&CO offers custom made solutions that address every stage of compliance journey. Some of our excise tax services include:

• Registration and Licensing support with ZATCA to obtain all the essential licenses
• Compliance Audit and risk assessment to evaluate the on-going business practices and detect any gaps present
• Monthly tax registration filing and documentation to prepare and submit accurate excise tax returns and track payments precisely
• Warehouse and inventory management and advisory to store and manage goods as per legal laws
• Conducting workshops and training programs to build capacity and to make sure that internal teams are well equipped with excise related responsibilities
• Representing in front of tax authorities and supporting businesses through resolving any disputes with ZATCA

With the help of thoughtful insights and practical experience, SS&CO make sures that businesses remain fully compliant while mitigating any administrative burdens and financial risks in excise tax.