1. What issue does this document address?
The document addresses the transition of excise tax on sweetened drinks in the UAE from the current ad valorem model (percentage of price) to a tiered volumetric model (based on sugar/sweetener content per 100ml).It clarifies:
❖ How sweetened drinks will be defined going forward.
❖ How tax will be calculated depending on sugar levels.
❖ Which drinks are excluded (e.g., 100% natural juices, milk products, baby formula, special dietary/medical drinks).
❖ The administrative requirements for businesses (lab testing, product registration, transitional stock rules).
❖ Effective date expected from 1 January 2026.
2. What was the status of excise tax before this clarification?
Before this change, all excise goods (including sweetened drinks) were taxed using an ad valorem method:❖ A fixed percentage (50%) of the “Excise Price” (retail price excluding VAT, or standard price list). EXTP012
❖ For example: a sweetened drink bottle with an excise price of AED 2 was taxed at 50% = AED 1 excise tax, regardless of whether it contained 3g or 15g sugar per 100ml.
❖ Carbonated drinks were a separate category subject to excise regardless of sugar content.
So the old system taxed based on price, not sugar content, and did not differentiate between high- and low-sugar products.
3. What problem is this document solving?
The current ad valorem method creates issues:❖ It does not encourage manufacturers to reduce sugar content, since tax is the same whether the drink is high or low in sugar.
❖ Drinks with identical sugar content but different retail prices end up taxed differently, which is inconsistent from a public health perspective.
❖ Some drinks with artificial sweeteners only were still subject to excise, even though they contained no sugar.
The new tiered volumetric model solves these by:
❖ Aligning tax with sugar content, incentivizing reformulation toward lower sugar products.
❖ Ensuring fairness: taxation reflects actual health impact, not retail pricing.
❖ Exempting zero-sugar artificially sweetened drinks from excise.
❖ Simplifying categories (removing carbonated drinks as a separate excise group).
In summary:
❖ Before: Excise tax = % of retail price (50%), regardless of sugar levels.❖ Now (from 2026): Excise tax = tiered system based on grams of sugar/sweetener per 100ml.
❖ Problem solved: The new model ensures healthier products are taxed less (or zero), and high-sugar drinks are taxed more, aligning with health policy and creating fairness.
Key points:
❖ Carbonated drinks will no longer be a separate category - their tax depends only on sugar content.❖ Lab certification will be required to confirm sugar content.
❖ If no lab report is available, the drink will automatically be treated as high sugar until proven otherwise.
Lets understand this with the help of an example
Excise Tax Example – 500ml Sweetened Drink
❖ Bottle size: 500ml
❖ Sugar content: 6g per 100ml (so total = 30g sugar per bottle)
❖ Excise Price: AED 2 per bottle
Before (Current system – ad valorem, 50%)
❖ Tax = 50% of Excise Price
❖ = 50% × AED 2 = AED 1 excise tax per bottle
Same rate whether the sugar was 3g/100ml or 15g/100ml.
After (From 1 Jan 2026 – tiered volumetric)
❖ Sugar content = 6g per 100ml
❖ Falls into Moderate sugar category (≥5g and <8g/100ml)
❖ Tax rate = To be set by Cabinet for moderate sugar drinks (not yet published).
Example outcome:
● If Cabinet sets Moderate sugar = 30%, then:
○ Tax = 30% × AED 2 = AED 0.60 excise tax per bottle
● If High sugar = 50% and Low sugar = 10%, then this drink would sit in the middle.
Impact
● Current system: Always AED 1 (50%), regardless of sugar.
● New system: Tax depends on sugar content.
○ Low-sugar drinks could be taxed less than AED 1.
○ High-sugar drinks could be taxed more than AED 1.
○ Zero-sugar artificially sweetened drinks = 0 tax.
● In summary: The new model introduces a health-based incentive — reformulating to reduce sugar can lower the tax burden.
Author: CA Mustafa G Daudi
Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.
