Hanhsi Indy Liu and Hisham Ali Alsabt are SJD candidates at Georgetown University Law Center. Any questions or comments on this post can be sent to:firstname.lastname@example.org or email@example.com.
Arabian Gulf countries, known for their high oil revenues and low tax rates for decades, have recently been suffering from declining oil revenues. To reduce their reliance on oil revenues, they have begun to follow global trends by implementing first-time excise taxes on tobacco (100%), energy drinks (100%), and carbonated drinks (50%) as well as a 5% value-added tax (VAT) for almost all products and services. In addition to compensating budget deficits, public health purposes have particularly been emphasized on implementing the new excise taxes
On June 10 and October 1, 2017, the Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE) became the first and second state members of the Gulf Cooperation Council (GCC), to impose the excise taxes on tobacco and soft drinks (including both energy drinks and carbonated drinks). The fiscal measures were implemented pursuant to the Common Excise Tax Agreement of the States of the GCC, an agreement adopted by the GCC in Riyadh, Saudi Arabia, on 9 -10 December, 2015. It requests the six GCC member states to adopt and impose excise taxes on goods that are deemed harmful to human health and to the environment (Article 3), while tobacco is the only health harmful product being explicitly singled out in the agreement (Article 6). The taxable product lists, as well as the tax rates, are determined by the Ministerial Committee of the GCC (Article 3).
The new high excise taxes, however, are not the only problems the Gulf nations have created for tobacco and soft drinks lovers. The GCC, in the same Riyadh meeting, also passed another agreement, the Common VAT Agreement of the States of the GCC, to create a new 5% VAT on most goods and services, including tobacco products and soft drinks. After the VAT implementation, there will be another 5% tax on top of the new excise taxes for tobacco and soft drinks products. The KSA and the UAE again become the first to implement the tax starting from January 1, 2018. All four other member states of the GCC, including Bahrain, Oman, Kuwait, and Qatar, expect to impose the VAT one year later in 2019.
This is not the first time that the Gulf countries have levied taxes to raise the price of the products for the sake of both revenue generation and public health promotion. On March 11, 2016, Saudi Arabia has already imposed a 40 % import duty on tobacco products; As a result, the price for a pack of imported Marlboro cigarettes (with 20 cigarettes) increased to 14 Saudi Arabian Riyals (SAR) (approximately equals to USD $3.73) from 10 riyals ($2.67), while the new 100% excise tax plus 5% VAT then almost double the price to approximately 26 riyals ($ 6.93) per pack, according to a local cigarette user in Riyadh.
The views reflected in this expert column are those of the individual authors and do not necessarily represent those of the O’Neill Institute for National and Global Health Law or Georgetown University. This blog is solely informational in nature, and not intended as a substitute for competent legal advice from a licensed and retained attorney in your state or country.