FTA Public Clarification on Natural Shortage in Excise Goods
FTA Public Clarification on Natural Shortage in Excise Goods
The Federal Tax Authority (FTA) has issued a new public clarification addressing the treatment of natural shortages in excise goods within a Designated Zone (DZ). The clarification provides guidance on when such shortages will not be treated as a release for consumption, thereby avoiding excise tax implications.
1. Natural Shortage Not Considered Release for Consumption
From 1 July 2025, excise goods will not be treated as released for consumption where a shortage arises due to the natural characteristics of the goods, provided specific conditions are satisfied.
2. Situations Where Natural Shortage May Occur
- Examples of acceptable natural shortages include:
- Evaporation or moisture loss under normal conditions
- Residues remaining in containers or distribution equipment
- Losses occurring within production machinery during normal operations
However, losses resulting from negligence, theft, or operational inefficiencies are excluded from the definition of natural shortage.
3. Requirement to Obtain an Independent Report
Warehouse keepers or taxable persons operating within a Designated Zone must obtain a report from an FTA-approved independent laboratory determining the permissible or expected percentage of natural shortage.
The report:
- Is based on inspection and operational data
- Remains valid for one year
- Specifies the allowable shortage percentage for the excise goods.
4. Reporting Obligations
Taxpayers must:
- Declare the natural shortage through the EmaraTax platform
- Ensure the declared shortage does not exceed the percentage stated in the report
- Maintain supporting documentation.
If the shortage exceeds the approved percentage, it will be treated as a release for consumption and excise tax will become payable.
5. Transitional Relief
For a transitional period, reports issued within 12 months from 1 July 2025 will be deemed valid until 30 June 2027, provided the application for the report is submitted on or before 31 March 2026.
Key takeaway:
The clarification introduces a structured mechanism allowing businesses to recognize natural operational losses in excise goods without triggering excise tax, provided strict documentation, reporting, and verification procedures are followed.
