Come October 1, UAE consumers will be paying 100 per cent tax on tobacco products and energy drinks and 50 per cent on carbonated beverages. While the tax burden is going to adversely impact only those who consume these products, the selective taxes on products that are harmful to public health and the society at large, goes beyond achieving fiscal objectives of augmenting and diversifying government revenues.
Clearly, the UAE and its Gulf Cooperation Council (GCC) counterparts have embarked on a long-term mission to tackle the widening fiscal gap as a result of the persistent decline in oil prices.
However, the objective of introducing excise duties on selected products such as tobacco or sugary drinks, has a slightly different objective than adding a few millions of dirhams more to the exchequer.
GCC countries are home to four million smokers who consume up to an estimated 50 billion cigarettes annually and with an impact to governments worth more than $500 million (Dh1.83 billion) in health-care costs to treat smoking-related diseases. Now, with government revenues lowered because of current oil prices, regional governments are more aware than ever of the significant health and economic burden that smokers inflict on their treasuries.
Although there are no hard numbers available on smokers in the UAE, estimates suggest that nearly 25 to 30 per cent of the UAE’s adult population smokes some form of tobacco that can cause serious health hazards.
The health risks of energy drinks and sugary drinks are well documented. Figures from International Diabetes Foundation show that nearly 20 per cent, i.e., one in five people in the UAE aged between 21 and 79 years have type 2 diabetes, thereby ultimately burdening the public health-care system. A World Health Organisation report titled ‘Fiscal Policies for Diet and Prevention of Non-communicable Diseases’ suggests that taxing sugary drinks could lower consumption and reduce obesity, type 2 diabetes and tooth decay.
Selective excise duties on harmful products are used as a policy measure across the world by governments to restrict their consumption. As a policy measure, excise duty has some clear advantages, such as creating a healthier society in the sense that it discourages people to consume harmful products or at least not do it as often. Secondly, higher taxes mean higher government revenues, which can go towards education, better roads and also for healing the sick.
