Introduction: A New Tax Landscape for Food and Beverage Businesses
Since January 2026, food and beverage businesses across the UAE and Saudi Arabia have been navigating a new fiscal reality. Building on the excise taxes first introduced in 2017 — which targeted carbonated drinks, energy drinks, and tobacco — both countries have now expanded the scope and structure of their sugar-based excise duties. The new framework introduces tiered tax rates based on sugar content per serving, extending beyond beverages to include certain categories of sweetened food products.
For manufacturers, importers, and distributors, this is not just a pricing issue. It reshapes product development, labeling, cost structures, and compliance reporting. Businesses that understand the mechanics of the new tax — and prepare their operations accordingly — will be better positioned to absorb the impact and identify opportunities in a market that is clearly moving toward lower-sugar formulations.
What Changed in January 2026: The Expanded Tax Framework
The GCC Unified Excise Tax Agreement, originally implemented in 2017, imposed a flat 50% excise tax on carbonated drinks and a 100% tax on energy drinks and tobacco products. The January 2026 amendments introduce a more granular, sugar-based approach. Instead of taxing product categories uniformly, the new framework assesses tax rates based on the sugar content per 100ml (for beverages) or per serving (for qualifying food products).
In the UAE, the Federal Tax Authority (FTA) has outlined three tiers. Beverages with less than 5g of sugar per 100ml fall under the lowest tier. Those between 5g and 10g per 100ml fall under a mid-tier rate, and products exceeding 10g per 100ml face the highest rate. Saudi Arabia's General Authority of Zakat, Tax and Customs (ZATCA) has adopted a similar structure, with slight variations in thresholds and rates. Both countries have also expanded the scope to include flavored milk drinks, sweetened juices that were previously exempt, and certain ready-to-drink tea and coffee products.
The practical effect is that a wider range of products now falls under excise duty, and the tax burden varies depending on the exact sugar content of each SKU. This makes accurate, per-product sugar tracking essential for both tax calculation and pricing decisions.
Compliance Requirements: Registration, Reporting, and Documentation
Businesses manufacturing or importing excise-taxable goods in the UAE must register with the FTA through the EmaraTax portal. Registered businesses are required to file excise tax returns on a monthly basis, declaring the taxable goods produced, imported, or released from designated zones during the period. In Saudi Arabia, the process runs through ZATCA's online platform, with similar monthly filing obligations.
The key compliance challenge is documentation. Tax authorities require businesses to maintain records that substantiate the sugar content declared for each product. This includes laboratory analysis certificates, product formulation records, and — critically — evidence that the declared sugar content matches the actual production formula. In the event of an audit, businesses must be able to demonstrate a clear link between the recipe or formulation used in production and the sugar content reported for tax purposes.
For multi-product businesses, this creates a significant data management burden. Each SKU must have its own documented sugar content, and that documentation must be updated whenever the formulation changes. Businesses that manage recipes and formulations in spreadsheets or paper-based systems will find it increasingly difficult to maintain the audit trail that tax authorities expect.
Financial Impact: Modeling the Cost Across Product Lines
The financial impact of the expanded sugar tax depends on a business's product mix. For a beverage manufacturer with a portfolio that includes both low-sugar and high-sugar products, the tax will affect each SKU differently. A juice product with 12g of sugar per 100ml may face a materially higher tax rate than a similar product with 8g, even though the consumer perceives them as comparable.
This creates both risks and opportunities. On the risk side, products at the upper end of a tax tier face pressure on margins, particularly if competitors reformulate to fall into a lower tier. On the opportunity side, products that are already low in sugar — or can be reformulated to drop below a tier threshold — gain a relative pricing advantage.
Businesses should model the tax impact across their full product portfolio. For each SKU, calculate the current sugar content per serving, determine the applicable tax tier, estimate the per-unit tax liability, and assess whether reformulation could move the product into a lower tier. This analysis requires precise sugar content data for every product — data that must come from the actual recipe formulation, not from outdated label declarations.
Reformulation Strategies: Reducing Sugar Without Losing Market Share
Reformulation is the most direct strategy for managing excise tax exposure. Many businesses are exploring ways to reduce sugar content without significantly altering taste, texture, or consumer acceptance. Common approaches include replacing part of the sugar with non-nutritive sweeteners (stevia, monk fruit extract, sucralose), increasing the fruit juice content in beverages to provide natural sweetness with lower added sugar, reducing serving sizes so that the per-serving sugar content falls below a tier threshold, and introducing new lower-sugar product lines alongside existing products.
Each approach carries trade-offs. Non-nutritive sweeteners are effective at reducing declared sugar content, but some carry negative consumer perception, and regulatory requirements for their use vary across GCC markets. Increased fruit juice content may raise costs and complicate shelf-life management. Serving size adjustments can feel deceptive to consumers if not communicated transparently.
The most effective reformulation programs are iterative. They start with precise knowledge of the current formulation, model the impact of changes on sugar content, cost, and sensory profile, and then test and refine. Recipe management platforms that link ingredient data to nutritional outputs make this process significantly more efficient. With RecipeBuilder, for instance, a product developer can adjust ingredient quantities in a recipe and immediately see the effect on sugar per serving, total calories, and cost — enabling rapid scenario planning without waiting for laboratory results.
Labeling Implications: Keeping Declarations Aligned with Formulations
The expanded sugar tax adds a new dimension to labeling accuracy. When tax liability is directly tied to sugar content, any discrepancy between the label declaration and the actual formulation becomes a dual compliance risk — a labeling violation under food safety regulations and a potential tax underpayment under excise law.
Businesses must ensure that their nutrition fact panels accurately reflect the current formulation of each product. This sounds straightforward, but in practice, formulations drift over time. Ingredient suppliers change, substitutions are made for cost or availability reasons, and production processes evolve. Each change can affect the sugar content — and therefore the tax tier — of the final product.
Establishing a process that links formulation changes to label updates is essential. Whenever a recipe is modified, the nutrition facts should be recalculated and the label updated before the reformulated product enters the market. Manual processes are prone to delays and errors; digital systems that automatically recalculate nutrition facts when recipe inputs change offer a more reliable approach.
Cross-Border Considerations: Managing Multiple GCC Markets
Food and beverage businesses that operate across multiple GCC markets face additional complexity. While the GCC Unified Excise Tax Agreement provides a common framework, each member state has implemented the sugar tax with its own thresholds, rates, and administrative procedures. A product that falls into a lower tax tier in the UAE may be assessed at a higher rate in Saudi Arabia, or vice versa.
Businesses must maintain market-specific tax calculations for each product. This requires knowing the exact sugar content of each SKU and mapping it against each country's tier structure. For businesses with large product portfolios — dozens or hundreds of SKUs, each potentially sold across multiple markets — this is a significant analytical and administrative undertaking.
Centralizing recipe and nutrition data in a single system simplifies cross-border tax management. When the sugar content of every product is calculated from a verified recipe and stored in a searchable database, generating market-specific tax reports becomes a query rather than a project.
Industry Response: How the Market Is Adapting
Early market data suggests that the expanded sugar tax is already reshaping the competitive landscape. Several major beverage manufacturers have announced reformulations of their best-selling products, targeting sugar reductions of 20-30%. Retailers report growing shelf space allocated to low-sugar and sugar-free alternatives. New product launches in the first quarter of 2026 have skewed heavily toward reduced-sugar formulations.
At the same time, consumer awareness of sugar content is rising. Media coverage of the tax has prompted conversations about dietary sugar intake, and surveys indicate that a significant share of UAE and Saudi consumers are actively checking sugar content on labels before purchasing. This creates a market environment where lower-sugar products have both a tax advantage and a consumer preference advantage.
Food businesses that are slow to adapt risk being squeezed from both sides — higher tax costs and declining consumer demand for high-sugar products. Those that move early to reformulate, re-label, and reposition their products can capture market share in a category that is clearly growing.
Building a Sugar Tax Compliance System: Practical Steps
To manage the expanded sugar tax effectively, businesses should take several concrete steps. First, conduct a full portfolio audit. Document the sugar content of every SKU based on the current production formula, not the current label. Identify any discrepancies between formulation and label declaration, and correct them.
Second, register with the relevant tax authority if not already registered. Ensure that your tax filing processes can accommodate the new tiered structure and that you have the data needed to complete monthly returns accurately.
Third, implement a system for tracking sugar content at the recipe level. This system should update automatically when formulations change and should be able to generate reports by product, by market, and by tax tier. RecipeBuilder provides this capability, linking ingredient-level data from the USDA database to recipe-level outputs and allowing businesses to generate per-serving sugar content figures for any product in their portfolio.
Fourth, evaluate your product portfolio for reformulation opportunities. Prioritize products that are close to a tier threshold — where a modest sugar reduction could yield a meaningful tax saving. Model the cost of reformulation against the tax saving to identify the highest-return opportunities.
Conclusion: Turning Regulation Into Competitive Advantage
The expanded GCC sugar tax is a structural change, not a temporary measure. Tax rates are likely to increase over time, and the scope of taxable products may broaden further. Businesses that treat this as a one-time compliance exercise will find themselves repeatedly reacting to regulatory changes. Those that invest in robust recipe management, accurate nutritional analysis, and proactive reformulation will be better positioned — not just to manage their tax burden, but to meet the growing consumer demand for healthier products in the Gulf market.