This will replace the current flat 50% rate with a model based on sugar content per 100ml.
The reform, announced by the Ministry of Finance (MoF) and the Federal Tax Authority (FTA), is part of a wider push to cut sugar intake, address non-communicable diseases, and align tax systems across the Gulf Cooperation Council (GCC).
The move is expected to accelerate reformulation and change how companies approach pricing, labelling, and compliance.
From flat rate to sugar-based tiers
Currently, the UAE levies a 50% excise tax on all sweetened drinks, regardless of formulation.
Under the new system, the tax will be calculated per litre based on the amount of sugar per 100ml. This means beverages with lower sugar content will be taxed at lower rates, while those with higher sugar levels will face higher costs.
The approach mirrors tiered tax systems in countries like the UK and Singapore, where such policies have driven meaningful product reformulation and nudged consumer choices toward healthier options.
Targeting sugar to improve public health
The updated excise tax model is the latest step in the UAE’s broader health agenda, as the country has one of the world’s highest rates of diabetes and rising levels of obesity and heart disease.
Excessive sugar consumption is a key contributor to these conditions, and authorities have said tying taxes to sugar content is an effective way to shift consumer habits and ease pressure on the healthcare system. They view excise tax as not only a fiscal tool but also a lever for shaping healthier behaviour, and believe this reform puts health at the heart of tax policy.
The policy also supports the UAE Vision 2030 strategy, which includes targets for improving population health and building more sustainable, diversified sources of government revenue.
Fiscal motivations remain relevant
While the health benefits are front and centre, the economic rationale is still strong. The UAE introduced excise tax in 2017 on soft drinks, energy drinks, and tobacco, and expanded it in 2019 to cover e-cigarettes and all sweetened drinks.
The upcoming change gives authorities more flexibility to fine-tune tax levels based on risk — charging more for products that pose greater health concerns and encouraging businesses to reduce sugar where possible. It also helps the government diversify income streams away from oil, a key goal under its economic development plans.
What beverage companies need to do
The tiered model introduces new compliance demands. From 2026, companies will be required to declare sugar content per 100ml for each product, calculate and apply the correct tax tier, and keep detailed records for FTA audits. This means internal systems — from labelling to accounting software — will need to be updated. Staff will need training, and product portfolios must be reviewed to assess tax exposure.
Many manufacturers are expected to reformulate recipes to reduce sugar and fall into lower tax brackets. Natural sweeteners like stevia or monk fruit may be used, but these ingredients can be costlier and require sensory testing to ensure taste and quality. Supply chains may also need adjustment, particularly for sourcing new ingredients or meeting clean-label demands from consumers.
Impact on pricing and brand strategy
Higher taxes will likely translate to higher shelf prices for high-sugar beverages, and companies will have to weigh how much of the cost to pass on and how much to absorb to stay competitive. Reformulated drinks may help protect margins while appealing to health-conscious consumers, but this requires backing from strong marketing and clear communication.
Brands that signal low sugar, no added sugar, or functional benefits may find it easier to justify price changes and build loyalty. Additionally, educational campaigns may also help explain the tax to consumers and reinforce the value of reformulated products.
Government support for the transition
To ease the shift, the MoF and FTA plan to roll out business support initiatives in 2025. These will include webinars and workshops on tax calculation and reporting, technical guidance on sugar declarations and thresholds, and industry consultations to address implementation questions.
The goal is to ensure a smooth rollout and avoid disruption across the supply chain. Trade associations are also expected to support outreach and help businesses prepare for the new framework.
Regional alignment and implications
The UAE’s tax reform fits into a broader GCC effort to align fiscal and health policies. Saudi Arabia and Oman already tax sweetened drinks, and other Gulf states may follow the UAE’s lead in adopting sugar-tiered taxation models.
For global beverage companies operating across the region, this means reformulation strategies will need to scale. Centralising R&D and regulatory functions may help companies respond more efficiently to evolving rules across different markets.
At the same time, the policy reflects rising demand in the Gulf for low-sugar, functional, and plant-based drinks — especially among younger consumers in urban areas. Brands that move early in this space may be better positioned to capture market share.
Time to act: Preparation starts now
Though the policy takes effect in 2026, companies are encouraged to begin preparation immediately. Key next steps include auditing product portfolios to assess sugar levels, prioritising SKUs for reformulation, updating systems for tax reporting and compliance and training teams across R&D, finance, and sales.
Early movers will not only reduce their tax exposure but also improve their standing with consumers and regulators alike, gaining greater trust and solidifying their commercial and industry reputation.
A shift toward health-first regulation
The UAE’s new excise tax model marks a shift in how beverage markets are governed. Taxation will no longer just be about revenue — it is set to be a tool for driving better public health outcomes.
Manufacturers that delay adaptation may face rising costs and shrinking margins. Conversely, those that embrace reformulation, invest in health-forward innovation, and educate their consumers will be better equipped to thrive.
