New Tax Adjustments for Sweetened Beverages in Upcoming Revisions

The UAE Ministry of Finance has finished preparing new tax laws that will change how sugary drinks are taxed starting January 1, 2026. Instead of the current flat 50% rate, the country will switch to a tiered system based on sugar content - the more sugar, the higher the tax. This brings the UAE in line with other Gulf countries that already agreed to use this approach.

Here's how the new system works: drinks will be taxed according to their actual sugar or sweetener content rather than getting hit with the same rate across the board. A lightly sweetened beverage might face a lower tax than a sugar-heavy soda. The ministry says this creates a more competitive tax environment while encouraging healthier choices.

The timing matters for businesses. Companies that imported or produced sugary drinks under the old 50% tax rate but haven't sold them yet will get partial refunds if the new tiered system results in lower taxes for their products. This transition mechanism prevents double taxation and protects businesses caught between the old and new rules.

For investors and manufacturers, this shift signals a more nuanced approach to excise taxes in the Gulf region. Rather than broad-brush taxation, governments are moving toward policies that differentiate products based on health impact. Companies producing lower-sugar alternatives could benefit, while those making high-sugar products might face steeper costs.

The UAE's move reflects a broader Gulf Cooperation Council strategy to harmonize tax policies across member states. When multiple countries coordinate their tax structures, it reduces regulatory arbitrage and creates more predictable business conditions across the region.

The ministry emphasizes that these changes support both economic stability and public health goals. By linking tax rates to sugar content, the policy encourages reformulation of products while generating revenue. This approach has gained traction globally as governments look for ways to address health concerns without imposing blanket bans or uniform penalties.