Exciting Changes to Selective Tax: Tiered Pricing Model Introduced for Sweetened Beverages

The UAE is introducing a new tiered tax system for sugary drinks starting January 2026. Instead of a flat rate, the tax will now depend on how much sugar is actually in the beverage. This means healthier drinks with less sugar will face lower taxes, while sugar-heavy drinks get hit harder.

The Ministry of Finance announced Cabinet Decision No. 197 for 2025, which replaces the current flat excise tax with what they call a "graduated volume model." Here's how it breaks down: drinks with 5-8 grams of sugar per 100ml will be taxed at 0.79 dirhams per liter. Drinks with 8 grams or more get the highest tax at 1.09 dirhams per liter.

But here's the interesting part - drinks with less than 5 grams of sugar or those using only artificial sweeteners won't be taxed at all. This creates a clear incentive for beverage companies to reformulate their products with less sugar.

The government says this is part of a broader push to improve public health and encourage healthier consumption habits. For beverage manufacturers, this means they'll need to provide detailed lab reports showing exact sugar content for each product. Companies that don't submit proper documentation will automatically get taxed at the highest rate until they can prove their drinks contain less sugar.

This approach follows global trends where governments are using tax policy to tackle rising obesity and diabetes rates. Countries like Mexico and the UK have seen success with similar sugar taxes, leading to reformulated products and reduced consumption of high-sugar drinks.

For consumers, this could mean more low-sugar options on store shelves as companies try to avoid the higher tax brackets. The beverage industry will likely need to invest in reformulation and new product development to stay competitive in this new tax environment.

The new system also provides clearer guidelines for businesses operating in the UAE's excise tax framework. Companies will have until January 2026 to prepare for the changes and register their products under the new tiered system.