New FTA Rules Alert: Claiming Natural Shortage on Cigarettes Just Got Regulated What Cigarette Manufacturers Need to Know

What This Blog Covers:

1. What is “Natural Shortage”?

2. Who is Affected?

3. Process to Claim Natural Shortage

4. Documentation Requirements

5. FTA’s Inspections

6. Why This Matters

UAE FTA Issues New Rules for Natural Shortage of Excise Goods – What Cigarette Manufacturers Need to Know

Starting 1 July 2025, the UAE Federal Tax Authority (FTA) has implemented new standards and procedures for excise goods that naturally lose volume—such as cigarettes, tobacco, and related products—while being manufactured, stored, or transported inside Designated Zones.

What is Natural Shortage?

Natural shortage refers to a loss in quantity of excise goods (like tobacco) that happens due to inherent product characteristics—not due to damage, theft, or human error. Think of it as evaporation, drying, or spillage that is unavoidable.

Who Does This Apply To?

Cigarette & tobacco manufacturers
Warehouse keepers handling excise goods
Any taxable person under Excise Tax storing/manufacturing within Designated Zones

What’s the New Process?

1. Get an Approved Report:

You must appoint an FTA-approved lab (Independent Competent Entity) to inspect your facility.
They’ll determine a permissible percentage of expected shortage—based on data from at least 6 past months.
This is called the “Natural Shortage Report.”

2. Submit a Declaration to FTA:

File an official Declaration with the FTA, reporting the actual shortage.
But remember: you can’t report more than what’s approved in your lab’s Report.

3. Keep Records Ready:

Maintain detailed documentation, including:

Manufacturing process flow
Equipment manuals
Loss reports and past data
The official lab report

FTA may conduct unannounced visits or audits anytime.

4. Report Validity:

Each lab report is valid for 1 year.
You must update the report if your production method or storage changes.

Why Is This Important?

Without following this process:

Any reported shortage may be deemed taxable, as if you sold the missing stock.
You may face penalties or issues during an audit.

But if documented properly, you won’t have to pay excise tax on this natural loss—a huge relief for tobacco manufacturers where drying/shrinkage is common.

Set up internal SOPs now. Get your production line reviewed, identify expected losses, and get your declaration strategy ready in time for 1 July 2025. If you’re in the cigarette or tobacco sector, and unsure how this affects you, feel free to connect—I’ll be happy to guide you.