Selective tax in Saudi Arabia has become a key regulatory tool in the market. The system supports public health goals, controls the circulation of harmful products, and ensures full compliance with modern tax standards. Through this approach, authorities aim to reduce the consumption of goods that negatively impact society or the environment.
In the following sections, you will find a clear and structured explanation of all aspects of selective tax in Saudi Arabia, from its definition to registration and compliance.
What Is Selective Tax in Saudi Arabia and Who Is Subject to It?
Selective tax in Saudi Arabia is an indirect tax applied to specific products known to be harmful to health or the environment, such as tobacco products, sweetened beverages, and energy drinks.
This tax applies to producers, importers, and licensed warehouses dealing with taxable goods. It also includes any entity that manufactures, supplies, or stores these products within the Kingdom.
Why Does Saudi Arabia Apply the Selective Tax System?
The implementation of selective tax in Saudi Arabia aims to support three main objectives:
- Reducing harmful consumption by encouraging consumers to limit products that affect public health.
- Improving quality of life by raising awareness and decreasing health risks linked to excessive consumption.
- Diversifying national revenue by taxing specific goods to support the budget within a sustainable economic framework.
The Difference Between Selective Tax and Value Added Tax
Selective tax in Saudi Arabia differs from VAT in purpose and scope. Selective tax applies only to harmful or specific goods, while VAT covers most goods and services.
Selective tax is imposed at the producer or importer level before the products reach consumers. VAT, however, is charged at the point of sale to the end consumer.
It is also important to distinguish between the tax applied directly to tobacco products and the additional municipal fees collected from restaurants and cafés that serve tobacco. These fees are separate and not a replacement for selective tax.
Also read: Municipality Requirements Guide for Cafés and Restaurants in KSA
Main Goods Subject to Selective Tax in Saudi Arabia
Selective tax in Saudi Arabia applies to a defined group of products, including:
- Tobacco products: 100%
- Soft drinks: 50%
- Energy drinks: 100%
- Sweetened beverages: 50%
These percentages are calculated based on the final retail value before the product enters the market.
Goods Exempt from Selective Tax in Saudi Arabia
Goods that are not harmful or those intended for medical or industrial non-consumable use are exempt. Traditional food items, natural water, and everyday products that do not pose health or environmental harm also fall outside the taxable list.
How to Calculate Selective Tax: Step-by-Step
Selective tax in Saudi Arabia is calculated using a simple formula:
Tax Amount = Retail Price × Selective Tax Rate
For example, if a soft drink costs 4 SAR and the tax rate is 50%, then:
Tax = 4 × 0.50 = 2 SAR
The final price after adding the tax becomes 6 SAR.
How to Register for Selective Tax in Saudi Arabia
Any business dealing with taxable goods must register through the Zakat, Tax and Customs Authority portal. Registration requires submitting activity details, warehouse information, and the goods traded.
Businesses must also submit periodic declarations that show quantities produced, imported, or consumed within warehouses. This ensures proper compliance with selective tax in Saudi Arabia and prevents violations.
Also read: Top Frequently Asked Questions About Tax Return in Saudi Arabia
Penalties for Non-Compliance with the Selective Tax System
Failure to comply with selective tax in Saudi Arabia may result in several penalties, including:
- Financial fines for late registration or late filing.
- Penalties for incorrect or incomplete data.
- Suspension of activity or closure of tax warehouses in cases of evasion.
- Doubling of the due tax when failing to disclose or pay.
How EZ Integrated and Its Partners Help You Achieve Full Compliance
Meeting the requirements of selective tax in Saudi Arabia is an essential part of broader tax compliance. With the expansion of regulations and the ongoing implementation of the second phase of e-invoicing, traditional systems are no longer sufficient. Accurate system integration has become necessary to ensure data integrity and avoid operational errors.
EZ Integrated, as an approved solution provider, supports businesses through:
- Seamless integration between accounting systems or point-of-sale systems and the FATOORA platform.
- Full implementation of second-phase requirements, with automated invoice transmission and validation.
- Ensuring data compatibility with all standards set by the tax authority.
- Supporting smooth operations without disrupting existing workflows.
On the operational side, the CODEIT point-of-sale system complements this setup by:
- Automatically calculating selective tax on taxable goods.
- Managing sales and inventory with clear and organized processes.
- Issuing e-invoices that comply with all integration requirements.
- Providing accurate data that supports periodic tax declarations.
Together, EZ Integrated and CODEIT offer a unified system that enhances compliance and day-to-day performance.
To apply the required tax procedures effectively, you may contact the EZ Integrated team for guidance in selecting the right technical solution for your business.