The UAE has announced a landmark reform to its excise tax framework, set to take effect on January 1, 2026. For the first time, low-sugar and reduced-calorie drinks will be taxed at a lower rate, making them significantly cheaper for consumers compared to traditional high-sugar beverages.

This is not just a tax update—it’s a shift in policy that combines public health goals, consumer affordability, and fiscal innovation, cementing the UAE’s position as a global leader in progressive taxation models.

Quick Snapshot: What’s Changing in 2026?

  • High-sugar drinks: Still taxed at 50%.
  • Low-sugar drinks: New reduced excise rate (expected to be below 50%).
  • Tobacco, energy drinks, e-cigarettes: No changes (100%).
  • Effective Date: January 1, 2026.
  • Authority in charge: Federal Tax Authority (FTA).

Why the UAE Introduced Excise Tax

Excise tax was first implemented in October 2017 as part of the government’s health and sustainability initiatives. The aim was to:

  1. Discourage consumption of harmful goods.
  2. Reduce public health risks (obesity, diabetes, smoking).
  3. Generate sustainable revenue streams beyond oil.

“Excise tax in the UAE has always been more than revenue—it’s a policy tool to influence healthier lifestyles.”
— Affinitas DMCC Tax Advisory Team

By 2025, excise tax revenues had exceeded AED 6 billion, according to official FTA figures, proving its effectiveness.

What the 2026 Reform Means

The 2026 reform is designed to:

  • Reward healthier consumption: Cheaper low-sugar drinks encourage better dietary choices.
  • Stimulate product innovation: Manufacturers reformulate beverages to qualify for the lower tax bracket.
  • Balance fiscal goals with wellness policies: Revenue neutrality maintained while reducing health costs long term.

Example:

  • High-sugar soda (50% excise) → AED 6 retail.
  • Low-sugar soda (lower excise, e.g., 25%) → AED 4.5 retail.

This pricing gap nudges consumer behavior while creating market opportunities for beverage companies.

Updated Excise Tax Rates 2026

Product Category2025 Rate2026 Rate
Tobacco & tobacco products100%100%
Energy drinks100%100%
Electronic smoking devices & liquids100%100%
High-sugar drinks (soft drinks, sweetened juices)50%50%
Low-sugar & reduced-calorie drinks50%Reduced preferential rate (TBA by FTA)

Global Comparisons

The UAE is aligning itself with other forward-thinking countries:

CountryModelImpact
UK“Sugar Tax” – tiered (5g–8g and >8g per 100ml)Reduced sugar in 50% of UK beverages since 2018.
MexicoFlat tax on sugary drinks (1 peso/liter)Consumption dropped by 12% in first year.
Saudi ArabiaSame as UAE pre-2026 (50% on sugary drinks)Market shifting toward sugar-free alternatives.
SingaporeLabels + advertising bans on high-sugar drinksSharp growth in “healthier choice” beverages.

The UAE is combining the UK’s tiered model with GCC-level harmonization.

Business Impact Analysis

1. Manufacturers & Importers

  • Reformulate beverages to reduce sugar and qualify for lower tax.
  • New product launches will focus on sugar-free, zero-calorie, and diet ranges.

2. Retailers & Distributors

  • Re-price inventory to reflect differential tax rates.
  • Increase shelf space for low-sugar options.

3. Consumers

  • More affordable access to healthier drinks.
  • Increased availability of sugar-free products.

Case Studies

Case 1: Coca-Cola Zero

In 2025, Coca-Cola UAE increased promotion of Coke Zero, anticipating lower excise rates in 2026. This product line is expected to gain double-digit market share growth once the tax cuts apply.

Case 2: Local Juice Producers

UAE-based juice brands are reformulating products by reducing sugar per 100ml to meet FTA criteria, allowing them to compete at lower price points.

Case 3: Retail Chains (Carrefour & Lulu Hypermarket)

Retailers are planning “low-sugar campaigns” for 2026, showcasing cheaper options, boosting consumer awareness, and driving higher volume sales.

Compliance Checklist for Businesses (2026 Update)

✅ Review product portfolios and reformulate to reduce sugar.
✅ Register/re-register affected products with the FTA.
✅ Update excise declarations in EmaraTax.
✅ Train accounting and compliance teams on new classifications.
✅ Update marketing, pricing, and POS systems to reflect revised excise rates.

Did You Know?

  • Diabetes treatment costs in the UAE exceed AED 8 billion annually (Dubai Health Authority).
  • WHO recommends taxing sugary drinks as a proven way to lower obesity rates.
  • Consumers in the UAE are already shifting—sales of sugar-free drinks rose 32% between 2020–2024.

FAQs: UAE Excise Tax Reform 2026

Q: What qualifies as “low-sugar”?
The Ministry of Health will release precise sugar-content thresholds before implementation.

Q: Does the reform affect VAT?
No. VAT (5%) still applies separately on top of excise tax.

Q: Will businesses pay more compliance costs?
Yes, businesses may need to update ERP systems, hire consultants, and conduct audits.

Q: Are Free Zone companies also affected?
Yes. Excise tax applies nationwide, including Free Zones.

Q: What happens if businesses misclassify products?
They risk FTA penalties, audits, and backdated tax liabilities.

Affinitas Insight

“This reform is not just about taxes—it’s about strategy. Businesses that plan now will save millions in tax liabilities, increase market competitiveness, and align with UAE’s health vision.”
— Affinitas DMCC

Why Choose Affinitas DMCC?

At Affinitas DMCC, we specialize in helping businesses and investors navigate the UAE’s business landscape. Our services include:

Our team ensures you save time, money, and compliance risks, giving you peace of mind while you focus on growth.

Final Thoughts

The UAE Excise Tax Reform 2026 is a bold move blending public health and fiscal innovation. For businesses, it’s both a compliance challenge and a growth opportunity. For consumers, it’s a path toward healthier living at more affordable prices.

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