Complex Made Simple

This is how the new UAE excise tax boosts the e-Dirham economy

The UAE’s new excise tax came into effect October 1, 2017, increasing the prices of tobacco products and energy drinks by 100 per cent and carbonated products by 50 per cent.

Close on the heels of the announcement comes the first dilemma for shops: What to do with old inventories stacked up at retail outlets, which are not subject to tax?

The excise tax law did give retailers a two months stock inventory allowance relative to their average sales operations, prior to the law taking effect.

If that number is exceeded, the excess stock would incur a five per cent tax on that additional stock.

According to the UAE’s official news agency WAM, the excise levy is estimated to generate approximately AED7 billion in annual revenue.

The Federal Tax Authority said this revenue will be collected in e-dirham only, following a series of e-dirham commitments by several government institutions as a boost to the economy.

E-dirham launch

According to the UAE federal site, the e-Dirham was introduced by the Ministry of Finance in 2011 to develop a system of electronic channels and digital payment gateways to collect service fees and revenue for the Federal Government via prepaid cards.

e-Dirham performance so far

The UAE Ministry of Finance (MoF) announced in July 2017 key data on the e-Dirham economy.

It said revenue collected through e-Dirham reached AED2.34bn in Q2 2017, thanks to 10.8 million transactions, compared to more than AED2bn in the same period in 2016, or 25 per cent growth.

On its own, revenues collected through the e-Dirham payment gateway reached AED958m in Q2 2017.

The efficiency of the electronic system of payment is that the excise tax e-dirham aims plans to achieve as well.

e-Dirham’s advantage

It’s fast. The average execution time for e-Dirham transactions is now only 1.02 seconds online through the e-Dirham network.

Saeed Rashid Al Yateem, Assistant Undersecretary for Resources and Budget Sector at MoF, said: “The e-Dirham system is characterised by its smart integration with global payment channels and other e-government applications. The e-Dirham card provides accessible payment options for transactions with more than 5,000 government services from Ministries, federal and local institutions and the private sector.”

He added: “The continued evolution of the e-Dirham system increases the efficiency and effectiveness of financial systems and the cash flow management process of the federal government.”

e-Dirham reliance

The e-Dirham is in fact a serious initiative by the UAE towards paperless and electronic governance.

This is in line with the fact that many institutions today are converting to a non-cash method of payment.

Hana Al Rostamani, Group Head of Personal Banking at First Abu Dhabi Bank, said in a 2017 statement: “Our cooperation with the Ministry of Finance in the e-Dirham system is a strategic partnership that transcends the boundaries of conventional banking services and products by providing innovative ideas, tools and experiences to customers.”

Other agreements

In February 2017, the MoF and the Federal Electricty and Water Authority (FEWA) signed an agreement to adopt e-Dirham.

The deal would enable FEWA to receive service fees electronically and thus could enhance efforts to facilitate the collection process for its clients.

In April this year, an e-Dirham agreement was reached between the MoF and the Dubai Health Authority (DHA) to adopt the e-Dirham system and e-Dirham cards as a means of paying for government services provided by DHA.

Speaking of this, Al Yateem said: “The results of the e-Dirham system have proved the speed and efficiency of the system, and is considered as one of the best and safer payment methods for government service fees. The system is also based on the latest international practices in the collection of service fees.”