Saudi Arabia to Impose a 100% Excise Tax on Vaping Devices

Saudi Arabia will impose a 100% tax on vaping devices and a 50% tax on certain sugary drinks, expanding the excise taxes already made mandatory for similar products in June 2017.

As the largest economy in the Arab world, Saudi Arabia already levies a 100% excise tax on cigarettes and tobacco products, and a 50% excise tax on energy drinks.

GAZT said it approved amendments to the existing regulations on May 15. According to guidance published Saturday in the official gazette, vaping devices and their accessories will be subject to a 100% tax, while soft drinks and sugary beverages will be subject to a 50% tax.
 
The Saudi Arabia website of supermarket retailer Carrefour shows that under the new rules, the typical price of a can of Coca-Cola will rise from the current 2.50 riyals to 5 riyals. The authority said the implementation date for the new tariffs will be determined soon.

The six-member Gulf Cooperation Council has pledged to introduce excise taxes and other taxes, including VAT, to increase non-oil revenue and reduce consumption of harmful products linked to diabetes, obesity, and other health risks.

A statement issued by the UAE Ministry of Finance in April this year showed that the UAE imposed excise taxes on certain goods at the end of 2017 and is now considering adding more products to its excise tax list. The ministry said it is conducting a joint study with Saudi officials to "explore adding new products to the selective tax list and determining tax rates for certain harmful substances."

Since the tax was introduced, prices of products currently covered in the UAE—including tobacco and its derivatives, carbonated beverages, and energy drinks—have doubled.

Saudi Arabia's excise tax is intended to boost non-oil revenue as part of a series of far-reaching reforms under the Vision 2030 economic diversification agenda.

These measures are already beginning to show results. The International Monetary Fund (IMF) estimates that Saudi GDP growth may come in slightly above its previous forecast of 1.8%, as the non-oil sector is expanding faster than other areas of the economy.

In 2018, Saudi Arabia's GDP growth rebounded to 2.2% after contracting in 2017. Following its fourth consultation with the country this month, the IMF said real oil GDP grew 2.8%, while non-oil GDP grew 2.1%.

The IMF said last week: "If Saudi Arabia increases oil production, then oil GDP growth will be higher, and exports and fiscal revenue will also be higher."

The IMF team expects that, over the medium term, growth in the non-oil sector will strengthen to around 3% to 3.25% as ongoing reforms deliver benefits, while overall real GDP growth will stabilize at around 2.5%.