UAE to Introduce Tiered Sugar Drink Tax from January 2026: What You Need to Know

Dubai, UAE: The UAE Ministry of Finance has confirmed that starting January 1, 2026, a new tax regime on sugar-sweetened beverages will replace the current flat tax model. Under the updated system, drinks will be taxed according to their sugar content rather than a one-size-fits-all rate. The shift aims to encourage healthier consumption, reward reformulated products, and modernise the country’s excise tax framework.

From Flat to Tiered: How the New System Works

Currently, sugary beverages are subject to a flat excise tax—roughly 50%—regardless of how much sugar they contain. Under the new model, the excise tax will vary based on sugar concentration per 100 ml (or equivalent), meaning drinks with lower sugar levels will incur lower tax burdens, while high-sugar beverages will face steeper rates.

The government has set up legal amendments to embed the new structure into national legislation. Part of this includes provisions allowing producers and importers who already paid the existing flat tax on stock unsold by 2026 to claim adjustments if their tax liability under the new model is lower.

This approach aligns with a regional GCC move to adopt a tiered volumetric excise model for sugar-sweetened beverages. The UAE’s system is being updated to harmonise with that broader GCC model, which ties tax outcomes more closely to health impact.

Public Health and Policy Goals

One of the primary motivations behind the change is public health. The UAE, like many countries, must contend with high rates of obesity, diabetes, and other non-communicable diseases. By strengthening the link between beverage pricing and sugar content, authorities hope to steer consumers toward lower-sugar options and influence manufacturers to reformulate.

Moreover, the new system is viewed as more equitable. Under the flat tax regime, all sugary drinks—whether heavily sweetened or lightly sweetened—were taxed the same, which critics say lacked nuance. The new tiered approach introduces a more refined policy that reflects the relative risk of each product.

Fiscal considerations also play a role. Modernising excise tax systems helps enhance flexibility, improve enforcement, and build trust between regulators and businesses. As part of the change, the UAE aims to maintain a competitive tax environment while ensuring that excise regulations are transparent and adaptable.

What Businesses Must Do

Producers, distributors, and importers of sugar-sweetened beverages will need to prepare well ahead of the January 2026 start date. Key tasks include:

• Audit product sugar levels: Companies must classify each product based on sugar concentration per defined units (e.g. per 100 ml).
• Reformulate product lines: To benefit from lower tax rates, many beverage makers are expected to reduce sugar content or introduce “low sugar” and “zero sugar” variants.
• Update labelling and declarations: Accurate sugar content declarations and compliance with labelling rules will be essential for tax calculations and regulatory checks.
• Revise accounting and systems: Internal systems must adapt to calculate excise tax on a tiered basis, support audit trails, and generate reports accordingly.
• Adjust pricing strategies: Some cost increases may be passed on to consumers, but companies will have to balance competitiveness and consumer acceptance.

To aid the transition, the Ministry plans to issue guidance, workshops, and stakeholder engagements in the months leading up to implementation.

Effects on Consumers and Market Dynamics

For residents, the new system will likely mean price differentiation across sugar-sweetened beverages. Drinks with higher sugar levels may become more expensive, while lower-sugar alternatives may see relatively milder tax increases—or possibly even price reductions.

This creates an incentive for consumers to shift preferences toward healthier options. Over time, supermarket shelves and drink portfolios may evolve significantly: zero- or low-sugar sodas, lightly sweetened juices, and reformulated recipes may become more prominent.

The tiered model is also expected to stimulate product innovation. Beverage manufacturers may explore sweetener alternatives, reduce sugar content, or redesign flavor profiles to maintain taste appeal while qualifying for lower tax brackets.

In the short term, consumers may see price fluctuations as producers adjust margins and test new pricing approaches. Some brands may absorb part of the cost to remain competitive, at least initially.

Challenges & Risk Factors

Transitioning to a tiered sugar tax involves complexity. Some challenges include:

• Scientific accuracy: Determining precise sugar measurements and product classifications requires reliable testing and regulation.
• Regulatory oversight: The Federal Tax Authority and Ministry must ensure compliance, audit sugar declarations, detect misclassification, and prevent misuse.
• Cost burdens: Smaller producers or importers may face higher compliance costs upgrading systems, conducting reformulations, or investing in testing.
• Consumer reaction: Some customers may resist price hikes on familiar drinks, especially in premium or established brands.
• Labeling and promotion: Misleading marketing (e.g. suggesting “healthy” when sugar is still high) may need stricter control.

To mitigate risks, authorities will likely phase in compliance deadlines, provide clear guidelines, and allow transitional remedies, such as crediting existing excise paid where applicable.

Timeline & Transition Period

The new tax rules officially take effect on January 1, 2026. In the lead-up period, businesses will have several months to:

• Update production lines
• Reformulate or adjust product sugar levels
• Train staff on classification and tax rules
• Communicate changes to trade partners, distributors, and retailers
• Inform consumers and manage expectations through awareness campaigns

Goods produced or imported before the switch but still unsold may be treated under transitional clauses that account for prior tax payments, depending on how their new tax liability compares.

Strategic & Long-Term Implications

The sugar tax reform is a strategic step in aligning UAE policy with global best practices for health-related taxation. Countries like the UK, Mexico, and Singapore have already implemented tiered sugar taxes or similar frameworks, showing measurable reductions in sugar content over time.

For the UAE, the tax shift supports multiple national objectives: promoting public health, diversifying revenue streams beyond oil, reinforcing food and beverage regulation, and encouraging sustainable business practices.

Over time, this policy could lead to a less sugar-dependent beverage market, broader consumer awareness around healthier choices, and stronger alignment between fiscal instruments and social goals.