Excise Tax Implementation Awaits Local Legislation

- Expected annual state revenues of 250 million dinars

- “Diet” beverages are exempt from tax calculation

- Tobacco, energy drinks, soft drinks, and luxury goods are subject to taxation

- Tax is calculated either as a percentage of the unit value, as a fixed amount, or both

- Synchronization of customs codes and activation of the collection mechanism will begin at border crossings and ports

- Gulf exemptions include dairy products, infant food, and medical beverages

Once the Cabinet approved the draft decree-law regarding the Unified Excise Tax Agreement for Gulf countries and its amendment annex, a surge of questions emerged among consumers and importers. These inquiries focused on the implementation date of the new tax, its rates, targeted brackets, covered categories, and the collection mechanism—whether monthly, quarterly, or annually.

In principle, it should be noted that the excise tax rate and the goods subject to it are defined in the Gulf agreement. However, local implementation requires the approval of a draft law specifying the implementation mechanism, liable parties, procedures, tax filing requirements, and a detailed list of goods.

Even though Gulf countries have already applied this tax since periods starting in 2017, the agreement stipulates that “each member state shall take internal measures to enact local legislation to implement the provisions of this agreement, including establishing the necessary policies and procedures for applying the tax in a manner consistent with the provisions of this agreement.”

According to the Gulf framework, the due local tax will be calculated either as a percentage of the value of the excise goods or as a fixed amount per unit of excise goods. It may also be calculated as both a percentage and a fixed amount per unit of excise goods simultaneously.

The retail selling price of excise goods will serve as the basis for calculating the due tax. The retail selling price is defined as the price set by the importer or manufacturer for excise goods, or according to the standard price lists periodically agreed upon among tax authorities in the GCC countries, whichever is higher, excluding the due excise tax and value-added tax (VAT).

While awaiting the finalization of liable categories, Gulf experiences indicate that the excise tax covers a range of goods that may harm public health or the environment, along with certain luxury items, subject to varying tax rates within a unified Gulf framework that regulates the imposition, collection, and monitoring of trade in covered goods.

The list of goods includes energy drinks, subject to a 100% tax across the Gulf; soft drinks at 50%; tobacco and its derivatives at 100%; and sweetened beverages, which will be subject to varying rates based on sugar content. “Diet Zero” beverages are exempt from excise tax. This applies to national, imported, and global products without discrimination.

Gulf reforms in the mechanism for calculating taxes on sweetened beverages will take effect from the beginning of 2026, transitioning to a tiered structure based on sugar content rather than relying on a uniform rate for the entire category.

According to previous 2019 estimates based on prices at that time, expected annual revenues from the excise tax were projected to reach approximately 200 million dinars. However, considering inflation trends over the past seven years, particularly in the current year which recorded an average of nearly 20%, especially on consumer goods, general revenues are now expected to reach 250 million dinars.

Regarding the collection mechanism, it is expected to be implemented through land port and port systems by adding selective tax codes to customs codes, enabling the Ministry of Finance to collect the due shares. This means that the collection of the selective tax will coincide with the entry of imported goods into the ports, while for locally manufactured goods, collection will be handled through the budgets of the relevant companies.

Kuwait’s foreign trade data showed that the value of tobacco and its products imports reached 75.376 million dinars in 2025, compared to 70.039 million in 2024, representing a 7.6% increase, while imports recorded 16.54 million in the first quarter of 2026.

On the other hand, the value of sugar group, its preparations, and honey imports amounted to 49.415 million in 2025, compared to 58.974 million in 2024, a decrease of 16.2%, while it recorded 11.572 million in the first quarter of 2026.

6 - Sweetened beverages prepared in restaurants and served in open, non-sealed containers for immediate consumption.

7 - The Gulf Agreement stipulates specific exemptions for goods benefiting diplomatic and consular bodies and international organizations, in accordance with the Agreement’s conditions and the principle of reciprocity, in addition to non-commercial goods carried by travelers within the prescribed customs limits and conditions.