Businesses that import, produce or store excise goods such as tobacco, alcohol and energy drinks in Qatar must now account for excise tax, take commercial decisions on how they will adjust their pricing structures and be ready to file the tax return when required.
Qatar Law No. 25/2018 on Selective Tax was signed on 13 December 2018 by Sheikh Tamim bin Hamad (Emir of Qatar) and has been in force since 1 January 2019. Qatar Law No. 25/2018 has offered some exemptions from excise tax but under certain conditions. Qatar's excise tax introduction follows the implementation of the tax by the United Arab Emirates, the Kingdom of Saudi Arabia and Bahrain, and included special purpose goods.
Similar to the other Gulf Cooperation Council (GCC) countries, the businesses that import, produce or store "health-damaging" or "special purpose" goods such as tobacco, alcohol and energy drinks in Qatar must now account for excise tax and file a transitional tax return if applicable.
It is highly anticipated that Qatar will implement other types of the indirect taxes which will contribute to the Qatar National Vision 2030 by creating new sustainable sources of income to be invested in and which will have long-term economic growth.
The recent adoption of international best practices in taxation will assist the government in Qatar to have different sources of non-hydrocarbon dependent income, which will promote economic growth and achieve financial stability. The new resources will most likely assist the government in maintaining a high standard of living of a modern society and ensure availability of funds for public services.
Before going over the key points to understand excise tax in Qatar, it is worth noting that late last year the country also agreed to establish the General Tax Authority (GTA), which replaces the Qatar Tax Department (QTD), under the supervision of the Minister of Finance. The GTA will oversee all tax and related laws and improve tax compliance. Qatar Emiri Decision No. 77/2018 on the Establishment of the General Tax Authority was released on 13 December 2018 to establish the mandate and function of the GTA.
The implementation of the excise tax had a significant effect on all businesses that import, manufacture or trade excise goods in Qatar especially for special purpose goods. Business entities that import, produce or store excise goods such as tobacco, alcohol and energy drinks in Qatar must now account for excise tax, take commercial decisions on how they will adjust their pricing structures, and be ready to file the tax return, when required.
As of 1 January 2019, only businesses who deal with excise goods file monthly tax returns within 15 days from the end of the taxable period whereas transitional tax filing is required for any business which is holding or storing excise goods for commercial purposes. The transitional tax return is required to declare and pay for the excise goods that are released for consumption.
Following the publication of Qatar Law No. 25/2018, the General Tax Authority (GTA) released guidance to provide an overview of the main excise tax rules and procedures in Qatar, how to be compliant, and along with this guidance, the GTA provides answers to questions that are frequently asked regarding the scope of the tax, how businesses should calculate the excise tax due, obligations, and the transitional period.
Implications and objectives
Qatar Law No. 25/2018 aims to impose excise tax on tobacco, and carbonated and energy drinks. Similar to excise tax regulations in the rest of GCC region, this was extended to include special purpose goods. Qatar Law No. 25/2018 outlines the scope of the excise tax, which is consistent with the GCC Excise Tax Framework Agreement.
All businesses which import, produce or store excise goods should have started to track the tax updates related to excise tax which may arise. Businesses need to review and update the internal procedures to make sure they are complying with the new tax regime, even during the transitional period, and check the impact on pricing through each step of their supply chain.
A few months after the implementation of Qatar Law No. 25/2018, consumers thought the excise tax on alcohol had been revised while the truth there was no change in excise tax rates in Qatar. However, the Qatar Distribution Company (QDC) had reduced the prices of alcohol by almost 30%. The introduction of excise tax in Qatar was a challenge and the QDC was expecting a reduction in the excise tax to 50%, which was the reason for refusing to pay the tax, eventually leading to delayed shipments. Most hotels were facing a shortage of alcohol, pushing them to hike prices to deal with supply challenges, thereby pushing the QDC to offer a 30% discount.
According to the recent report from the International Monetary Fund (IMF) in June 2019, the total expenditure growth is limited to around 2%, while the government is allowing room for increased spending allocation to critical sectors (health and education). This was the main reason behind the authorities' plan to enhance domestic revenue mobilisation by introducing the excise taxes in early 2019. The introduction of VAT, meanwhile, has been postponed to 2020.
The IMF report recommended that enhancing non-hydrocarbon revenues should continue to be at the centre of the reforms relating to tax policy and administration, paving the way for a more modern and broad-based tax system. The IMF report also shows that the IMF staff welcomed the authorities' decision to put in place an independent tax authority under the auspices of the Ministry of Finance, with the aim of further improving tax administration.
Key points of Qatar Law No. 25/2018
Qatar Law No. 25/2018 states that the Minister of Finance should release the Executive Regulations (ERs) but no exact date when it will be released. The excise tax originally paid by the business can be refunded in the following cases:
- export or re-export of excise goods already released for consumption in the State of Qatar
- use of excise goods already released for consumption in the State of Qatar to produce other excise goods or
- movement of excise goods already released for consumption in the State of Qatar to another GCC member state implementing excise tax.
In light of Article 30 of Qatar Law No. 25/2018 and the guidance provided by the GTA, the new tax is imposed on:
- all importers and local producers of the relevant excise goods
- any individual or business that is, or is expected to, import, produce or store excise goods. The business will be required to submit a registration application to the GTA within 90 days from the date of enforcement of Qatar Law No. 25/2018.
This means that a person who held excise goods in their inventory prior to the implementation of Qatar Law No. 25/2018 but was not involved in transactions may not be required to get registered with the GTA. However, they will still be required to submit the transitional tax return during the transitional period. The GTA also requires any taxable person who holds an inventory of excise goods exceeding QAR 50,000, at the effective date of Qatar Law No. 25/2018, to attach an audit certificate with the transitional tax return. This certificate would validate the inventory and is to be signed by an accredited auditor in Qatar. The excise tax needs to be paid within 30 days from the submission date of the transitional return. Unless it is explicitly mentioned in Qatar Law No. 25/2018, the business may object to the assessment, under the provisions of Qatar Law No. 21/2009 Promulgating the Income Tax Law. This should be done within 30 days of receiving a notification of such assessment. Otherwise, the tax assessment decision will become final and the tax will be due.
Tax suspension position, warehouse and freezones
The tax guidance has requested that any person who operates or intends to operate a tax warehouse must register as a warehouse keeper in order to enjoy the tax suspension as specified in Article 11 of Qatar Law No. 25/2018, where tax on excise goods produced locally or imported is suspended provided that the business submits a bank guarantee equivalent to the value of tax due to the Directorate General of Customs. This guarantee will remain valid throughout the period under which payment of tax remains suspended. Accordingly, businesses are not required to pay the tax even if excise goods are transported between tax warehouses under a tax suspension scheme, as long as the excise goods are not released for consumption from the tax warehouse. Qatar Law No. 25/2018 does not provide clarity on how the excise tax will impact the freezones, but it is presumed it will be similar to other GCC countries where the excise goods inside freezone areas should not be taxed, unless they are released for personal consumption and not consumed for the business activity.
Excise tax setting-off
Article 12 of Qatar Law No. 25/2018 provided an option for refund in certain cases including set-off tax previously paid on excise goods, provided that these goods have been used in the production of excise goods on which tax is payable.
Under Article 13 of Qatar Law No. 25/2018, goods are exempted from excise tax if received by diplomatic and consular missions, organisations and heads and members of diplomatic and consular missions, accredited by Qatar, on the condition of reciprocity. Goods will also be exempt if they are accompanied by travellers entering Qatar, provided they are of non-commercial status and satisfy the terms and conditions specified in the GCC Common Customs Law.
Need more information? Contact us today.
A version of this article originally appeared on Lexis Middle East.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.