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The United Arab Emirates Federal Tax Authority (FTA) has announced a significant reform to its excise tax regime: beginning in 2026, the UAE will implement a tiered excise tax system for sugar-sweetened beverages (SSBs), with tax rates directly linked to sugar content per 100ml. This move replaces the current flat 50% tax applied to all sweetened beverages, marking a strategic shift in the country’s public health and fiscal policy.
The new policy is part of a broader national initiative to reduce sugar consumption, promote healthier lifestyles, and encourage food and beverage manufacturers to reformulate products with lower sugar content.
From Flat to Tiered: Excise Tax Based on Sugar Density
Under the existing framework, the UAE levies a uniform 50% excise tax on sweetened beverages, including soft drinks, energy drinks, and powdered drink mixes. Starting in 2026, this model will be replaced with a sugar-based tiered system, wherein:
- Higher sugar content per 100ml results in higher excise tax per litre
- Lower sugar content will attract reduced tax rates
This volumetric approach is intended to align tax liability with health impact, incentivizing both manufacturers and consumers to make healthier choices.
Economic and Policy Rationale
The FTA stated that the policy reform is designed not only to adjust pricing structures, but to influence consumption patterns, in line with national health goals and the UAE Vision 2031.
Since its introduction in Federal Decree-Law No. 7 of 2017, the UAE’s excise tax system has targeted products deemed harmful to health and the environment, including:
- Tobacco and related products (100%)
- Energy drinks (100%)
- Electronic smoking devices (100%)
- Carbonated drinks (50%)
- Sugar-sweetened beverages (50%)
The new tiered taxation will replace the flat 50% tax currently applied to sweetened drinks, a change the FTA says is necessary to create a more equitable and health-outcome-driven tax framework.
Industry Transition Period and Implementation Strategy
The FTA has assured stakeholders that a comprehensive transition period will be provided, with the tax changes set to take effect in 2026. This gives businesses — especially local beverage manufacturers, importers, and distributors — adequate time to:
- Review product portfolios
- Reformulate beverages to reduce sugar content
- Adapt packaging and labeling in compliance with the new rules
The FTA, in coordination with the Ministry of Health and Prevention, will launch a nationwide awareness and support campaign, including guidance materials and technical implementation documents to ensure smooth compliance.
Exemptions Under Current Regime (Expected to Continue)
Certain beverage categories will likely continue to be exempt from the excise tax on sweetened beverages, including:
- Beverages with at least 75% milk or milk substitutes
- Infant formula and baby food
- Medical and dietary nutrition products
Alcoholic beverages remain outside the excise regime and are regulated separately.
Broader Tax and Public Health Objectives
The excise tax reform supports several strategic national objectives:
- Public health improvement by discouraging high-sugar product consumption
- Revenue diversification away from oil-based income
- Environmental and lifestyle policy alignment through taxation of harmful goods
- Long-term sustainability of healthcare systems via preventive fiscal policy
Next Steps and Outlook
Further details — including specific tax bands, calculation formulas, and reporting requirements — will be published by the FTA in upcoming administrative guidance.
In the meantime, tax professionals, CFOs, and compliance officers are advised to:
- Assess current product offerings for sugar thresholds
- Prepare for adjusted tax declarations and audits under the new model
- Monitor FTA updates for detailed compliance procedures
The shift to sugar-based taxation marks a pivotal evolution in the UAE’s approach to excise duties — balancing fiscal efficiency with proactive public health policy.
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