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12 July 2024

Digital Tax Stamp Scheme for Tobacco establishes effective control system: FTA

By Wam

The Federal Tax Authority (FTA) has reaffirmed that Cabinet Decision No. (42) of 2018 on Marking Tobacco and Tobacco Products establishes an accurate and effective control system, allowing FTA to efficiently collect taxes, ensure transparency and combat tax evasion.

The scheme is set to be implemented in collaboration with the relevant authorities to ensure a single integrated set of procedures is rolled out, guaranteeing the protection of rights and responsibilities of Taxable Persons, as well as ensuring transparency with regards to the procedures that regulate their relationship with FTA.

FTA reaffirmed that tobacco suppliers must abide by the new scheme to avoid the administrative penalties, which could include a ban on non-compliant businesses, preventing them from exercising any commercial activity until they comply fully with the system, which goes into effect at the beginning of 2019. The FTA revealed that another decision is expected to be issued by the Cabinet detailing the administrative penalties imposed on violations of the procedures, including fines imposed on a person who possesses excise goods that do not carry digital stamps, or who permits the use of his/her facilities to sell such products.

FTA asserted that penalties will also be imposed on persons who tamper with the stamps placed on these goods, or persons who print on top of them. Furthermore, penalties will be imposed on persons who fail to declare the transfer of excise goods, as well as on persons who fail to comply with the safe-storage requirements for the stamps; persons who undertake unauthorised trading, exchange, sale or supply of stamps; and Persons who re-use previously used stamps.

FTA Director-General Khalid Ali Al Bustani said: "Cabinet Decision No. (42) of 2018 On Marking Tobacco and Tobacco Products complements the UAE’s tax legislation infrastructure, which is one of the most advanced in the world. It was developed following extensive studies and offers simple procedures to help businesses comply with tax obligations."

"The UAE is the first country in the region to implement a Digital Tax Stamp Scheme for tobacco products - the most advanced of its kind in the world," he added.

"The system offers an innovative solution for combatting tax evasion and facilitating inspection and control at customs and markets; it prevents the sale of tobacco products where Excise Tax has not been settled. Digital tax stamps are placed on the packaging of tobacco products and registered in the FTA’s database; they contain tax-related data that can be read using special devices."

In a press release issued today, the Authority explained that the Cabinet Decision outlined the procedure to be followed to apply the stamps on tobacco products and indicate that the due Excise Tax has indeed been paid.

The stamps must be applied on specific products, and in the exact position determined by the Authority, which was also authorised to determine cases where the stamps are not required.

The Decision stipulates that the stamps are to be placed onto Excise goods (after packaging) at the facility where they are produced (if manufactured in the UAE), or at a location outside the country prior to importing them.

According to the Cabinet Decision, the Authority can determine the shape of the stamp and the conditions for applying it, this includes determining the cases where no stamp is required, the method of placing the stamp and its location on the Excise good in question.

The decision specifies that the stamps must be placed on the Excise goods at the facility where they are manufactured if they are made in the UAE, following the packaging process, or at a location outside the UAE if they are imported.

As for the procedures surrounding the supply of the stamps, the Decision requires the importer or local producer to issue an order to purchase the stamps according to procedures pre-determined by the Authority, indicating that the approved supplier must supply said stamps to the importer or local producer in accordance with procedures agreed upon between the approved supplier and the FTA.

No other Person may trade, exchange, sell or supply these stamps; importers across the UAE may request the approved supplier to supply the stamps directly to the specific producer of Excise Goods, which may include foreign producers. The Authority also sets the due tariffs on the stamps, which must be paid by the supplier before the stamps are issued.

The Cabinet Decision specified mechanisms for tracking and identifying the origin of specific Excise goods (tobacco and tobacco products), indicating that importers/local producers/Persons designated in the supply chain must keep records of the transfer of all Excise goods to and within the UAE during the period in which they are in possession of these goods.

This includes (but is not limited to) the entry of said Excise goods into the possession of the importer/local producer/Person designated in the supply chain, as well as the gradual transfer of these goods within the UAE, until they exit the possession of said importer/local producer/Person designated in the supply chain.

The "designated person" is defined as any Person dealing with the Excise goods in question, who is required by the FTA to document the movement of these goods.

All importers/local producers/Persons designated in the supply chain are required to register and declare the Excise goods they buy, sell, store, transfer or process. Meanwhile, customs agencies are tasked with verifying stamps on Excise goods entering the UAE.