Key Violations and Penalties of Excise and Customs Tax in KSA

Saudi Arabia imposes an excise tax on harmful goods, such as tobacco products and energy drinks. In contrast, the customs tax is applied to imported goods, with rates varying based on the product type. Non-compliance with these regulations, such as inadequate record-keeping or submission of inaccurate documentation, may lead to significant penalties under the excise and customs tax laws in KSA, including fines or license suspension.

This blog explores the key excise tax violations businesses must watch out for. We’ll also explore the excise tax penalties that KSA businesses face when these violations occur.

Excise Duty Compliance

Introduced in 2017, Saudi Arabia's Excise Tax aims to diversify revenue sources and promote public health. It is levied on harmful or non-essential goods, either at the time of manufacture or import. The tax rates are as follows:

• Tobacco products: 100%
• Soft drinks: 50%
• Energy drinks: 100%
• Electronic smoking devices and related liquids: 100%

Businesses must  comply with the following if they fall under excise laws

• Registration: Entities dealing with excise goods must register with the tax authority. Registration decisions are issued within 14 days of application, and the failure to register can result in automatic registration by the authority.
• Tax period: Every two months. Businesses should file Tax returns and make necessary tax payments after the end of each tax period.
• Return filing: Submit returns within 15 days after the end of each tax period.
• Records: Maintain accurate documentation of goods, transactions, and tax payments for compliance.
• Excise Tax Payment: Deposit the required excise duty to the government 15 days post-return submission or notification.

Customs Duty Compliance

Customs duty is imposed on goods imported into Saudi Arabia, with rates varying based on the product type. For example, food and agricultural products exceeding self-sufficiency levels may attract a maximum rate of 40%.

Importers are required to comply with the following regulations

• License Application: Entities must apply for a customs clearance license through authorized channels. Licenses are issued for three years
• Documents: Keep all import-related documents, such as invoices, shipping papers, and duty payment receipts.
• Payment timeline: Ensure timely payment upon the import of goods.

Key Violations of Excise and Customs Tax

Complying with excise and customs tax laws helps ensure smooth trade operations and proper revenue collection. The main types of excise tax violations under these regulations are as follows:

• Entering or attempting to enter excise goods into the country or taking out such goods without adhering to the laws and regulations
• Producing, transferring, possessing, storing, transporting, or receiving excise goods without following the legal provisions
• Engaging in the production, import, or possession of excise goods without proper registration
• Submitting fabricated or forged documents, records, or declarations with the intent to evade taxes
• Preventing, disabling, or hindering ZATCA (Zakat, Tax, and Customs Authority) employees from performing their duties
• Failing to notify ZATCA of changes in registration information before they occur or within 30 days of occurrence
• Failing to notify ZATCA of updates to license information before the changes occur or within 30 days

Penalties for Violations of Excise and Customs Tax

The following table explores the penalties of excise tax in KSA:

How Can I Ensure Compliance With Excise and Customs Tax Regulations in KSA?

To avoid penalties and maintain smooth operations, here are some key steps businesses can take to ensure full compliance:

1. Understand the Taxable Goods

Get familiar with the list of products that are subject to excise tax. It covers items like tobacco, soft drinks, energy drinks, and electronic smoking devices that are dangerous or harmful. Ensure you know the relevant tax rates and keep track of all these items in your inventory.

2. Register with Zakat, Tax, and Customs Authority

Ensure that your business is properly registered with ZATCA for Excise Tax. Registration is a legal requirement for businesses importing, producing, or distributing excise goods.

3. Maintain Accurate Records

Keep detailed commercial and electronic records of all transactions involving excise goods. These records should comply with the Excise Tax Law and its Implementing Regulations. Ensure your records are updated regularly and are available for inspection by ZATCA.

4. Use a Compliant Administrative System

Implement an administrative system that aligns with ZATCA's requirements. This may include using software solutions that help manage Excise Tax filings, tracking taxable goods, and generating accurate reports.

5. Report Changes in Registration or License Information

Report any changes to your business registration or license information to ZATCA. This should be before changes occur and within 30 days after changes. Non-compliance could lead to fines.

Conclusion 

The Excise Tax, introduced in 2017, targets harmful or non-essential goods. The aim is to reduce consumption while generating revenue. Meanwhile, Customs Tax applies to imported goods. Key violations include failure to maintain proper records, submit accurate documents, and notify the authorities of changes. This can result in significant fines or license suspension. Businesses must stay vigilant to avoid penalties.