Guidelines for Selective Taxation

Today’s article focuses on the Guidelines for Selective Taxation, as selective tax is one of the key types of taxes applied in Saudi Arabia.

Selective taxation is imposed on specific goods, as clearly defined in the Executive Regulations of the Selective Tax Law.

In this article, we will highlight the most important details of selective taxation in Saudi Arabia, referencing the Guidelines for Selective Taxation issued by the relevant authorities.

Understanding Selective Taxation

Selective tax is levied on certain products that may negatively impact public health or the environment.

This tax applies to producers, importers, and holders of selective goods during the transitional period or in a tax-suspended state.

The Zakat, Tax and Customs Authority (ZATCA) in Saudi Arabia has issued the Guidelines for Selective Taxation to help those subject to the tax better understand the legal and operational framework.

Saudi Arabia began implementing the selective tax based on the unified GCC agreement on selective taxation.

Those subject to this tax are required to comply with payment obligations to avoid legal penalties and financial fines.

A penalty of 5% of the unpaid amount per month is imposed for failure to settle the selective tax.

As for tax evasion, violators may face a fine no less than the due tax amount and up to three times the value of the selective goods.

When Is Selective Tax Due?

Before discussing when the tax becomes due, let us first review the products subject to selective taxation.

According to the system, these are goods deemed harmful to human health or the environment, assessed according to international standards and specifications. Examples include:

Carbonated drinks
Energy drinks
Sweetened beverages
Tobacco and its derivatives
Electronic smoking devices and accessories

Selective tax becomes due once these goods are made available on the market, even if no sale has taken place yet.

Key Features of Selective Taxation

Selective taxation has several distinguishing features:

It is a type of consumption tax, imposed only on specific goods.
It is collected once—either at the point of production or import.
For locally produced goods, commercial entities collect the tax.
For imported goods, customs authorities collect the tax.
It encourages healthier consumer behavior by discouraging harmful consumption.

How It Differs from VAT

Now that we’ve explored the Guidelines for Selective Taxation, let’s compare selective tax with Value-Added Tax (VAT):

Selective tax is a direct tax, while VAT is an indirect tax imposed at each stage of the supply chain.
Selective tax is applied to specific goods, whereas VAT is applied to most goods, with some exceptions.
VAT is charged at fixed rates, while selective tax rates vary based on the type of good.

If you need help preparing tax reports, feel free to reach out to us at Business Pillars Company.
We are a registered firm in Saudi Arabia with over 20 years of experience in tax, audit, and financial services.

Our services include:

Internal and external auditing
Accounting and bookkeeping
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Company formation procedures in Saudi Arabia and Bahrain
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For more official details, you can also visit the Zakat, Tax and Customs Authority (ZATCA) website.

To conclude, we’ve discussed what selective tax is under Saudi law and examined the main Guidelines for Selective Taxation.
We’ve also clarified how it differs from VAT and emphasized the importance of compliance.

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