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A sweeping reform to the UAE’s excise tax regime is set to shake up both supermarket shelves and corporate boardrooms. In a move designed to combat rising health concerns and reshape consumer behavior, the Ministry of Finance (MoF) and the Federal Tax Authority (FTA) announced on July 18, 2025, the introduction of a tiered sugar-based excise tax on sugar-sweetened beverages (SSBs), scheduled to take effect in early 2026.
The new policy doesn’t just aim to reduce sugar consumption and tackle public health issues like obesity and diabetes, it’s also poised to reshape pricing strategies, supply chains, and product development across the beverage industry. Companies will face increased pressure to reformulate high-sugar products, adapt internal systems, and recalibrate market positioning, as the tax burden will now vary depending on sugar concentration per 100ml.
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The more sugar a beverage contains, the higher the tax per litre, marking a definitive shift from the current flat-rate model. For businesses, this could mean either absorbing higher costs or passing them on to consumers, all while racing to maintain competitiveness in a rapidly changing market.
From flat rate to sugar-based taxation
Currently, sugary drinks in the UAE are subject to a flat 50 per cent excise tax. However, the new mechanism introduces a graded taxation structure based on sugar concentration per 100ml, making pricing more reflective of a beverage’s nutritional profile.
A report by the UAE’s official news agency WAM indicated that this reform supports public health strategies by discouraging the consumption of high-sugar products. Moreover, the shift is expected to stimulate manufacturers to innovate and develop lower-sugar alternatives.
“This new tax structure is not just a fiscal tool, it’s a regulatory incentive to push the food and beverage industry towards healthier standards,” said Shamma Al Falahi, Partner and Head of the Tax Department at BSA LAW in Dubai.
Pricing strategies in the spotlight
The tax change will likely have a significant impact on product pricing strategies across the beverage sector. Al Falahi noted that manufacturers and retailers will need to evaluate how the new tax tiers affect retail prices and consumer demand.
“Companies will need to adjust their pricing models, taking into account the increased tax burden on high-sugar products,” she said. “This might lead to a shift in promotion towards lower-sugar or sugar-free beverages, which will be taxed at a lower rate, making them more competitively priced.”
In addition to reevaluating profit margins, businesses will also have to weigh the long-term benefits of reformulating their products to fall into lower tax brackets. Those that act early may gain a distinct market advantage.
Importers are also expected to pivot quickly in response to the upcoming changes. According to Al Falahi, many will likely look to source beverages with reduced sugar content or partner with suppliers to reformulate offerings to meet the UAE’s new regulatory thresholds.
“There will be a stronger demand for beverages that are specifically tailored to meet the lower tax tiers. This could open the door to entirely new product lines that align with both consumer trends and regulatory expectations,” she explained.
By responding proactively, importers can maintain competitive pricing while also meeting the demands of increasingly health-conscious consumers in the region.
Industry leaders who take the initiative to reformulate their beverages ahead of the 2026 rollout stand to gain substantial competitive advantages. These companies will enjoy lower excise taxes, potentially enabling them to offer more affordable retail prices, thereby capturing larger market share.
“Early reformulation doesn’t just make financial sense, it also offers a branding opportunity,” said Al Falahi. “These companies can position themselves as part of the solution to public health challenges, which resonates with today’s consumers.”
In contrast, businesses that delay reformulation may find themselves saddled with higher costs, reduced demand, and diminishing shelf presence as consumers gravitate toward healthier, lower-taxed options.
Industry action plan: What to do before 2026
With the announcement made well ahead of the 2026 rollout, businesses have time to prepare, but the window is closing fast. Al Falahi recommends that manufacturers and importers start now by reviewing the sugar content across all beverage lines.
“Manufacturers and importers should immediately audit their product ranges to determine sugar content,” she advised. “They also need to explore options for reformulation, relabeling, and revising packaging to reflect new formulations and tax implications.”
Alongside technical adjustments, businesses should prepare by training cross-departmental teams, aligning marketing strategies, and ensuring compliance documentation is ready for inspection.
The move to a sugar-based excise tax is more than a pricing issue, it’s an operational overhaul.
Businesses must update internal systems and processes to calculate taxes accurately based on sugar content and to remain compliant with the FTA’s forthcoming guidelines.
This includes enhancing accounting software, inventory management systems, and reporting tools to reflect the variable tax rates and track compliance efficiently.
“Investing in automated systems and digital solutions will help companies adapt quickly and avoid errors,” Al Falahi noted. “Companies must also maintain robust record-keeping to handle FTA audits and ensure transparency.”
Navigating legal and regulatory complexity
Legally, the transition to a sugar-based model introduces a new layer of complexity. Accurate product classification based on sugar concentration will be essential, and any misrepresentation could expose companies to penalties and enforcement action.
“Legal departments must work closely with product teams to ensure that measurements, documentation, and disclosures meet FTA standards,” said Al Falahi. “Interpretation of the rules must be precise, and compliance strategies must be implemented well in advance of the rollout.”
This will likely require consultation with tax professionals and legal experts, especially as the final implementation legislation is expected in late 2025.
A public health push with long-term benefits
Beyond the operational and legal implications, this reform represents a significant public health milestone. Developed in coordination with the Ministry of Health and Prevention, the new tax policy is designed to empower consumers to make better dietary choices, while holding the beverage industry accountable for the health impact of its products.
“This isn’t just about taxation, it’s about changing habits and improving lives,” said Al Falahi.
“The goal is to create a more health-conscious society through both policy and education.”
The FTA has indicated that comprehensive awareness campaigns will accompany the policy rollout to ensure clarity and compliance among businesses and consumers alike.
As the UAE continues to lead the region in health-driven policymaking, this sugar-content-based tax marks a significant step toward a more sustainable and wellness-focused future.
