ITC Accounting and Tax Consultancy

Tax Audits – FTA Inspections and seizure of Tax evaded Excisable Goods

The Federal Tax Authority (FTA) with the collaboration of other government entities had increased the inspections compared to the last year to ensure the consumers from non-compliant products combat tax evasion and ensure compliance with tax legislation and procedures. Excise tax is imposed on goods which are harmful to human health with a lot of inclusions and exemptions through the law.

The Excisable products are mainly into 5 categories which include Tobacco & Tobacco products, electronic smoking devices and liquids and tools, Energy drinks, Sweetened drinks, and carbonated drinks. FTA have imposed strict regulations and control for excise goods at its taxable point. Excise is an indirect tax however the excise tax is not due at the supply but rather on the import, production, release from the Designated zone and stockpiled goods.

Market Update

  • FTA increased inspections in the year 2022 (first half) by 104 Percent compared to the last year’s first half inspections.
  • The authority had seized and confiscated nearly 5.5 million pieces of tobacco and tobacco products that do not carry DTS stamps within the 6 months of 2022.
  • About 1.07 million packages of other excisable goods were seized within the first half of 2022.
  • Recently a commercial facility in Dubai faced foreclosure from the authority based on 5.4 million packets of tobacco and tobacco products being sold without digital tax stamps.

Overview- Excise Law

  • The tax obligations in the Federal Decree-law 7 of 2017 on excise tax states that the due Excise tax shall be imposed on the production, Import, Release of excise goods from the Designated zone and stockpiling of excise goods
  • The general provisions of the decree law article 24 state about the record-keeping and evidential requirements, failure to keep the required documents may lead to a penalty of AED. 10,000 first time and AED. 20,000 in case of repetition as per cabinet decision 49 of 2021.
  • Article 23 of the Federal decree law states the various instances that may consider tax evasion. Some of these include bringing or attempting to bring excisable goods without paying tax, producing, storing, acquiring, transporting, or receiving excisable goods where the due tax was found unpaid, placing false distinguishing marks, and submitting false, unreal, and counterfeit documents.
  • In the case of undeclared tax due on an import and found tax evaded, a person may be subject to a penalty of 50% of the unpaid or undeclared tax, as per the cabinet decision 49 of 2021.

Importance of DTS stamps on Tobacco & Tobacco products

 It is a secure product marking applied to tobacco & tobacco products in UAE, also ensuring the tax on those products is paid. The Digital Tax Stamp (DTS) control solution delivers a unique pack marking and encoding to allow product traceability from point of manufacture through to the final Emirate of distribution, and to support enforcement activity targeting the reduction in illicit Tobacco & tobacco products trading. Currently, this scheme is in place for Cigarettes, Shisha and Other Tobacco products that are manufactured or imported for sale within the UAE mainland or Duty-Free. De La Rue is the service provider currently working with different principal companies to ensure the products with DTS Stamps.

Seizure of electronic smoking devices and the liquids and tools

Recently we have seen FTA conducting a lot of inspections, especially for the retailers in the local market dealing in electronic smoking devices and liquids and tools. Regardless, if you are not an importer or producer, it is also the responsibility of the person who is dealing with electronic smoking devices and the liquids and tools to ensure the tax on those products is paid to FTA. FTA conducts the inspection, charges penalties and seizes the goods until the tax due and penalty is paid. For non-registered and registered TRN holders FTA is issuing the assessment report and providing a common GIBAN number for the collection of due amounts. However, for the registered TRN holders the penalty will not populate on the FTA portal rather the channel used by FTA for this type of inspection is different. It should also be noted that any tools which are used in electronic smoking devices are subject to Excise tax and if the tax is not made it will lead to the subject of tax evasion.

Any Person who deals with Excisable goods must ensure the tax is paid on the goods brought from a local market

The tobacco and tobacco products may have the tax stamps to ensure the goods purchased from the local market are tax paid, however for the products which do not include tax stamps such as electronic smoking devices and the liquids and tools, Energy drinks, Sweetened drinks, and carbonated drinks it is the responsibility of the person who deals with such goods to ensure the product brought are excise tax paid. Even though, it is not an obligation for any person who does not import, produce, release from the designated zone or stockpile goods to register for excise tax, it is his obligation to ensure that the product he purchased for necessary excise tax has been paid. FTA may conduct an inspection and any person who deals with excisable goods may charge a penalty as per the cabinet decision 49 of 2021, if unable to prove that the tax on those goods has been already paid.

What are the Steps to be taken?

If you are a person who deals in excisable goods in the local market and is involved in various activities such as storing, acquiring, transporting, receiving, purchasing, or selling excisable goods you have to ensure the tax on the goods has been paid at the time of the points stated in the federal decree law. Based on our recent experience we could see that many traders were not able to prove to the FTA that the tax on the goods have been paid or was not sure of the sufficient documentation to be maintained to prove the Excise tax on the goods had been paid as Excise tax is part of the cost. Hence, below are some of the evidence or reports that can help a trader or any person dealing in Excise goods prevent Tax evasion.

  • Ensure all the substantial evidence stated in the law is collected and recorded.
  • Regular bookkeeping of day-to-day transactions must be recorded.
  • Ensure the products you are dealing with are registered with FTA.
  • Accounting software for recording day-to-day transactions and extracting reports such as purchases, sales, and stock movement.
  • Consult a tax expert regarding all your queries regarding Excise tax & Vat and ensure you comply with the Tax Law.
  • Prepare yourself for an inspection from FTA at any time. 

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