The Tiered Volumetric Model Explained: Calculating Excise Tax on Sugar for 2026
Imagine two drinks on the same shelf. Same size, same brand tier, same retail price. Today, they face the same excise tax. From 1 January 2026, that changes. One will pay more, not because it’s priced higher, not because it’s marketed as premium, but because it simply has more sugar per 100 ml.
The UAE is overhauling its sugar-sweetened beverage excise. The flat 50% ad-valorem tax is gone. In its place a tiered volumetric model is introduced, where tax is calculated per litre based on sugar content. Shelf price is no longer the basis of tax liability, formulation is.
This shift is much more than a shift. It changes how manufacturers, importers, and distributors think about pricing, product design, and compliance.
In this article, we break down:
- How the tiered volumetric model works
- Step-by-step calculation examples
- Compliance, pricing, and reformulation strategies for 2026
For businesses, this isn’t just a tax update. It’s a call to rethink product strategy.
Understanding How the Tiered Volumetric Model Redefines Sugar Excise Tax
The terminology like tiered and volumetric sounds technical. The logic is not.
Volumetric means excise is calculated per litre of product. Not as a percentage of price.
Not based on invoice value. Simply AED per litre. Tiered means the per-litre rate changes depending on sugar content.
More sugar per 100 ml = higher excise per litre.
Less sugar = lower or zero excise.
That is the core idea. Instead of asking, “How much does this product cost?” The tax now asks, “How much sugar does this product contain?”
This approach breaks the automatic link between premium pricing and higher tax. A low-sugar premium drink may attract less excise than a cheaper, high-sugar alternative. For businesses used to modelling excise tax in the UAE as a pricing function, this is a fundamental shift.
Why the UAE abandoned the flat 50% ad-valorem excise
Under the current regime, sweetened and carbonated drinks generally attract a 50% excise tax calculated on the higher of:
- Declared retail selling price, or
- A deemed market value
This system has two well-known limitations:
- Price-driven distortions
Higher-priced products pay more excise, even if their sugar content is lower. - Weak health signalling
Consumers do not see a consistent relationship between sugar intensity and price.
The tiered volumetric model fixes both.
Excise liability will now rise or fall only with sugar density. Retail pricing strategy becomes secondary. For some products, excise will increase. For others, it will fall. And for zero- or very low-sugar products, it may disappear entirely.
This is why UAE introduced a new tiered excise tax model for sugary drinks, not as a revenue experiment, but as a behavioural tool.
Sugar bands, not shelf labels, drive tax outcomes
Under the 2026 framework, sweetened beverages are classified into sugar tiers based on grams of total sugar per 100 ml. The thresholds are fixed. They are not averaged across a portfolio. They apply product by product.
A difference of 0.1 g per 100 ml can move a drink into a higher tier. That is not theory.
It is how the law is drafted. Which is why excise is now inseparable from formulation data, lab testing, and product governance. This is also where excise tax compliance risk increases sharply for businesses without robust controls.
Legal Architecture Behind the New Sugar Excise Framework
The tiered volumetric model does not stand alone. It sits on top of an existing excise framework that has been gradually expanded since 2017.
Key instruments include:
- Federal Decree-Law No. 7 of 2017 on Excise Tax
- Cabinet Decision No. 52 of 2019 (Executive Regulations)
- Cabinet Decision No. 99 of 2025 (mechanism refinements)
- Cabinet Decision No. 197 of 2025, which formally introduces the tiered volumetric model
- FTA Public Clarification EXTP012, which explains application mechanics
Together, these instruments redefine how excise tax accounting recommendations UAE professionals must approach sweetened beverages. The Decree-Law establishes the tax base.
The Cabinet Decisions define calculation mechanics. The Public Clarification explains how the FTA expects businesses to apply them in real life.
This layered structure matters. Most disputes do not arise from the law itself. They arise from interpretation gaps between these layers. Which is why excise tax advisory services in the UAE are increasingly focused on governance, not just filing.
Why Health Policy Sits at the Centre of This Reform
Globally, sugar-sweetened beverage (SSB) taxes have evolved in one clear direction:
away from value-based taxation and toward sugar-content-based models.
Evidence from WHO, EMRO, and multiple OECD jurisdictions shows that tiered sugar taxes:
- Reduce average sugar intake
- Encourage reformulation rather than simple price hikes
- Preserve government revenue while improving public-health outcomes
The UAE’s model mirrors frameworks used in the UK, South Africa, and parts of the EU, but adapted to GCC excise architecture. This matters for one reason.
Once a country adopts sugar-based taxation, thresholds tend to tighten over time. Today’s <5 g band may not remain static forever. From a forward-looking excise tax management perspective, this reform should be read as a direction of travel, not an endpoint.
Defining Sweetened Drinks, Sugar Content, and Tax Tiers in Practice
To put this new tax system into context, it is extremely important to define sweetened drinks first of all:
What Legally Counts as a “Sweetened Drink”
The excise framework does not care how a product is marketed.
“Natural.”
“Light.”
“No added sugar.”
“Craft.”
“Functional.”
None of these terms determine excise treatment.
What matters is whether the product meets the FTA definition of a sweetened drink.
Under the UAE excise regime, sweetened drinks include:
- Ready-to-drink beverages
- Concentrates, syrups, powders, gels, and extracts
- Any product that can be converted into a beverage for consumption, whether immediately or after dilution
If it can become a drink, it is potentially in scope.
That includes products not traditionally viewed as “soft drinks.” Flavoured waters. Drink mixes.
Liquid enhancers. Certain coffee and tea bases. This is where excise tax audit exposure typically begins.
Ready-to-drink beverages
These are straightforward.
- Sugar is measured per 100 ml of the finished product
- Excise is charged per litre of the beverage as sold
No conversion logic is required.
Reconstituted products
This is where complexity enters.
For concentrates, syrups, powders, and extracts:
- Excise is calculated on the final consumable volume, not the sold volume
- Manufacturer-recommended dilution ratios are mandatory
- Excise liability is often many times higher than businesses initially expect
A 750 ml syrup bottle may produce 7.5 litres of drink. Excise is charged on 7.5 litres, not 0.75. This point alone has triggered significant reassessments under previous excise audits.
Total Sugar Means Total Sugar - Not Just Added Sugar
This is one of the most misunderstood elements of the 2026 model.
Total sugar content includes:
- Added sugars
- Naturally occurring sugars
- Sugars from honey, syrups, fruit concentrates, and similar caloric sweeteners
There is no carve-out for “naturally sweet.” If sugar is present, it counts. This is intentional.
Health policy does not distinguish metabolic impact based on marketing narratives. For excise tax advisory UAE professionals, this means nutrition labels must be read with legal precision, not consumer logic.
Artificial Sweeteners and Sugar Calculations
Artificial sweeteners complicate classification, but not in the way many expect.
- Artificial sweeteners do not add to sugar grams per 100 ml
- They are excluded from sugar calculations
However, a product with zero sugar but artificial sweeteners does not automatically fall outside excise. It is classified into a separate category under the tiered model. This distinction matters when modelling future policy risk, which we will return to later.
Sugar Thresholds That Determine Excise Outcomes
Under Cabinet Decision No. 197 of 2025, sugar tiers are fixed and explicit.
They are measured strictly per 100 ml of finished beverage.
The tiers are:
- Less than 5 g per 100 ml
→ 0% excise (AED 0 per litre) - 5 g to less than 8 g per 100 ml
→ AED 0.79 per litre - 8 g or more per 100 ml
→ AED 1.09 per litre - Artificial-sweetener-only beverages
→ Separate classification (not sugar-based)
If a product sits at 5.01 g, it moves up a tier. This is why lab precision matters more than ever under excise tax compliance rules.
Why “Low Sugar” Claims Often Fail Excise Tests
A common mistake appears again and again during reviews. A product is marketed as “low sugar.” Its nutrition panel supports that claim under consumer law. But excise classification still pushes it into a taxable tier.
Why?
Because excise law does not use marketing thresholds. It uses numeric thresholds per 100 ml. A drink can be “low sugar” in consumer terms and still exceed 5 g per 100 ml. This disconnect is where disputes begin.
Explicit Exemptions from Sugar Excise
Not everything that tastes sweet is taxable. The framework explicitly excludes certain categories, but only if strict conditions are met.
Common exemptions include:
- 100% natural fruit juice with no added sugar
- Milk and dairy products, including plain and flavoured milk (subject to limits)
- Baby formula and infant nutrition
- Medical nutrition products, when properly classified
These exemptions exist for nutritional and policy reasons. But they are narrow. And they are frequently misunderstood.
The Risk Zone: “Natural Sugar Only” Products
This is where businesses tend to overestimate safety.
A beverage may be labelled:
- “No added sugar”
- “Naturally sweetened”
- “Fruit-based”
Yet still fall into excise scope. Why? Because even small additions of sweeteners, including fruit concentrates, honey, or syrups, can disqualify the exemption. Once an exemption condition fails, the product enters the tiered model like any other sweetened drink. This is a recurring focus area in excise tax advisory services in Dubai engagements.
Edge Cases That Require Careful Testing
Some products sit right on the boundary.
- Coconut water blends
- Flavoured plant-based drinks
- Juice drinks diluted below 100%
- Kombucha and fermented beverages
In these cases:
- Lab results matter more than ingredient lists
- Branding language offers no protection
- Conservative classification is often the safer position
This is where excise tax consultancy services in Dubai add the most value, not by filing returns, but by preventing misclassification before products reach market.
Step-by-Step Mechanics for Calculating Excise Tax Under the 2026 Sugar Model
Once a product is correctly defined and classified, the excise calculation itself is not complicated. What is complicated is doing it in a way that survives an excise tax audit. The 2026 model is unforgiving. Small documentation gaps default to the highest tier. Small arithmetic errors multiply across volume.
Step 1: Verify Sugar Content per 100 ml
Everything starts here. Sugar content must be supported by a MOIAT-accredited laboratory certificate confirming:
- Total sugar (g per 100 ml)
- Testing methodology
- Product identity matching the registered SKU
- Batch or formulation reference
Marketing nutrition panels are not enough. Supplier declarations are not enough. Foreign lab reports are not enough unless formally accepted. If sugar content cannot be proven, the FTA is empowered to assume highest-tier classification. This is why excise tax compliance begins in the lab, not in the ERP.
Step 2: Classify the Product into the Correct Sugar Tier
Using the certified sugar value, the product must be placed into one of the defined categories:
- <5 g per 100 ml
- 5 g to <8 g per 100 ml
- ≥8 g per 100 ml
- Artificial-sweetener-only
There is no averaging across batches. If lab results show 4.99 g, the product qualifies for zero excise. If they show 5.01 g, it does not. Misclassification risk here is one of the most common triggers for retrospective reassessments under excise tax in the UAE.
Step 3: Apply the Correct Excise Rate per Litre
Once the tier is fixed, the rate is mechanical.
- <5 g per 100 ml → AED 0 per litre
- 5–<8 g per 100 ml → AED 0.79 per litre
- ≥8 g per 100 ml → AED 1.09 per litre
Retail price is irrelevant. Promotions are irrelevant. Transfer pricing is irrelevant at this stage. This is where the volumetric model shows its discipline.
Step 4: Determine Taxable Volume at SKU and Batch Level
Excise is calculated on litres, not units. And not at invoice level. The FTA expects excise to be computed:
- Per SKU
- Per batch or import consignment
- Using consistent units of measure
A 330 ml can equals 0.33 litres. A 1.5 L bottle equals 1.5 litres. It sounds obvious. Yet errors here are frequent – especially in multipacks and promotions. This is why excise tax management now requires SKU-level master data integrity.
Step 5: Compute Excise Liability and Document Everything
The calculation itself is simple:
Taxable volume (litres) × applicable rate = excise payable
What matters is what sits behind that number.
A defensible excise position requires:
- Lab certificates
- SKU master data
- Volume calculations
- Tier classification rationale
- Reconciliation to EmaraTax filings
This documentation becomes the permanent audit trail.
Worked Calculation Examples
Let’s translate theory into numbers.
Example 1: 330 ml Can Near the 5 g Threshold
Product A
- Sugar content: 4.9 g per 100 ml
- Package size: 330 ml (0.33 L)
- Tier: <5 g → 0% excise
Excise calculation
0.33 L × AED 0 = AED 0
Now compare with:
Product B
- Sugar content: 5.1 g per 100 ml
- Same size, same price
Excise calculation
0.33 L × AED 0.79 = AED 0.26 per can
A difference of 0.2 g of sugar changes the tax outcome entirely.
This is why reformulation discussions are already underway across the market.
Example 2: 1.5 L PET Bottle in the High-Sugar Tier
Product C
- Sugar content: 9.8 g per 100 ml
- Package size: 1.5 L
- Tier: ≥8 g → AED 1.09 per litre
Excise calculation
1.5 L × AED 1.09 = AED 1.64 per bottle
Under the old 50% ad-valorem system, excise would have depended on price.
Under the new model, sugar density alone drives the result.
Example 3: Syrup Converted into Ready-to-Drink Volume
Product D (Syrup)
- Bottle size: 750 ml
- Manufacturer dilution ratio: 1:9
- Final consumable volume: 7.5 litres
- Sugar content (after dilution): 6.5 g per 100 ml
Tier
5–<8 g → AED 0.79 per litre
Excise calculation
7.5 L × AED 0.79 = AED 5.93 per bottle
This is where many businesses under-declare.
They calculate excise on 0.75 L instead of 7.5 L.
That error rarely survives an audit.
Concentrates, Powders, and Gels – Mandatory Conversion Logic
The FTA requires excise on reconstituted products to be calculated using:
- Manufacturer-recommended dilution ratios
- Consistent, documented conversion factors
Businesses cannot select dilution ratios opportunistically. If multiple ratios exist, the most common or consumer-realistic ratio must be used. This area remains a priority focus for excise tax advisory services in the UAE because it directly affects payable volumes.
Multipacks, Promotional Bundles, and Mixed-Tier Cartons
Promotional pricing does not simplify excise. If a multipack contains:
- One zero-excise SKU
- One medium-tier SKU
- One high-tier SKU
Excise must be calculated separately for each item, even if sold under a single promotional price. There is no averaging across the pack. This is a frequent failure point in excise tax filing assistance UAE reviews.
Common Calculation Errors That Trigger Reassessments
By experience, these issues recur:
- Using retail price instead of volumetric logic
- Applying average sugar values across SKUs
- Ignoring dilution ratios for concentrates
- Failing to update excise registration data after reformulation
- Treating lab results as optional
Each one can result in default classification at AED 1.09 per litre.
Special Product Scenarios That Complicate Sugar Excise Calculations
Not every beverage fits cleanly into a sugar tier. Some products straddle definitions.
Others sit outside the model entirely. A few look exempt until one ingredient quietly pulls them back in. This is where excise tax compliance stops being theoretical and becomes judgment-based, guided by law, but tested by facts.
Products Combining Sugar and Artificial Sweeteners
These products are increasingly common.
Lower sugar.
Better taste control.
Often positioned as “reduced sugar” rather than “sugar-free.”
From an excise perspective, the rule is precise:
- Artificial sweeteners do not count toward sugar grams
- Sugar content still drives tier classification
If a product contains any sugar, it is classified based on total sugar per 100 ml, even if artificial sweeteners are also present. There is no blended or weighted approach. A drink with 6 g of sugar and artificial sweeteners still falls into the 5–<8 g tier. Artificial sweeteners do not soften the rate. This distinction is frequently misunderstood and regularly corrected during excise tax audits.
Artificial-Sweetener-Only Beverages
Products containing zero sugar but artificial sweeteners only are treated separately.
They are not assessed under the sugar tiers. They fall into a distinct classification under the excise framework. Today, this category benefits from favourable treatment compared to high-sugar products. But this comes with a strategic warning.
International health policy is increasingly scrutinising artificial sweeteners. WHO guidance has already shifted. Future tightening is plausible. From an excise tax advisory UAE perspective, artificial sweeteners may offer short-term tax relief, but they are not a long-term certainty.
Energy Drinks Remain Outside the Tiered Model
Energy drinks are the major exception. They do not move into the volumetric sugar-based framework. They remain subject to the existing 100% ad-valorem excise tax. This is not an oversight. It is a policy choice.
Energy drinks are regulated based on stimulant content and consumption patterns, not just sugar. For portfolios that include both soft drinks and energy drinks, this creates internal complexity:
- Different excise bases
- Different calculation logic
- Different pricing sensitivities
Managing both under one system requires careful configuration – a growing area for excise tax services in UAE.
Milk-Based Beverages: Exempt, Until They Aren’t
Milk and dairy products are generally excluded from sugar excise.
But the exemption is conditional. Plain milk is excluded. Flavoured milk with limited additions?
Usually excluded. Milk-based drinks with added sugars, syrups, or flavour enhancers beyond permitted thresholds? Potentially taxable.
Plant-based alternatives – almond, oat, soy – require even more care. They do not automatically inherit dairy exemptions. This category often requires product-by-product testing, not blanket assumptions.
Coffee and Tea-Based Beverages
Coffee and tea products create recurring confusion. The key distinction is where and how they are prepared.
- Ready-to-drink bottled coffee or tea → potentially in scope
- Concentrated bases or syrups → in scope once reconstituted
- On-premise preparation (cafés, restaurants) → generally excluded
A bottled iced coffee with added sugar is not treated the same way as a café latte made on-site. This line matters. It is also frequently tested during audits because classification errors are common.
On-Premise Beverages and Non-Sealed Products
Generally, excise applies to produced or imported excise goods.
Beverages:
- Prepared on-premise
- Not sealed for retail sale
- Not entering commercial distribution
are typically outside excise scope.
This includes:
- Fountain drinks
- Freshly prepared beverages
- Drinks mixed at point of sale
However, if syrups or concentrates used on-premise are imported or produced commercially, excise may still apply at the concentrate level. This distinction is subtle and often overlooked.
Non-Commercial and Personal-Use Products
Excise tax is a commercial tax.
Products prepared for:
- Personal consumption
- Non-commercial events
- Demonstrations or testing
may fall outside scope, but only with evidence. The burden of proof sits with the business.
Without documentation, the FTA is unlikely to accept non-taxable treatment during an excise tax audit.
Why These Scenarios Matter More Than They Seem
Most excise disputes do not arise from core soft drinks.
They arise from:
- Borderline products
- Hybrid formulations
- Portfolio extensions launched quickly
- Seasonal or limited-edition SKUs
These are exactly the situations where internal controls are weakest. Which is why excise tax consultancy services in Dubai increasingly focus on product governance, not just return preparation.
Compliance Infrastructure - Documentation, Registration, and Systems Readiness
The tiered volumetric model does not fail because businesses misunderstand the law. It fails because systems are not ready to carry it.
From 2026 onward, excise compliance will be judged less on intent and more on evidence.
If the data cannot be produced cleanly, consistently, and quickly, the position is weak – even if the tax paid is broadly correct. This is the quiet shift happening inside excise tax compliance in the UAE.
MOIAT-Accredited Laboratory Certificates as Primary Evidence
Lab certificates are no longer supporting documents. They are foundational. For each excise-registered sweetened beverage, the FTA expects:
- Sugar content (g per 100 ml)
- Test method and standard used
- Product formulation or SKU reference
- Batch or formulation version linkage
- Issuance by a MOIAT-accredited laboratory
Certificates must be current, traceable, and consistent with product registration data. Outdated or generic lab reports are not defensible. This is why excise tax advisory services in the UAE increasingly start with a lab-gap assessment, not a tax review.
Validity Periods and Retesting Expectations
The law does not prescribe a fixed retesting frequency. But audit practice does. Retesting is expected when:
- Formulation changes
- Ingredient sources change
- Agricultural inputs vary materially
- Sugar values sit close to tier thresholds
If a product sits at 4.9 g or 5.0 g per 100 ml, relying on a two-year-old report is risky. During an excise tax audit, the question is not “Was a test done?” It is “Is this result still reliable?”
Default-to-Highest-Tier Risk Without Valid Documentation
This point cannot be softened. If acceptable lab evidence is not available, the FTA may:
- Classify the product provisionally at the highest sugar tier
- Apply excise at AED 1.09 per litre
- Reassess retrospectively
The financial exposure is not limited to underpaid tax.
Penalties, late payment charges, and reputational risk follow.
This is a recurring outcome in cases reviewed by excise tax auditor teams.
Updating Excise Goods Registration Before 1 January 2026
Existing excise registrations will not automatically convert. Businesses must update registered product details to reflect:
- Sugar tier classification
- Applicable volumetric excise rate
- Product form (ready-to-drink, concentrate, powder)
- Lab certificate references
Failure to update registrations creates a mismatch between filings and product data – a red flag in excise tax in the UAE. Timing matters. Waiting until January 2026 compresses risk. Early updates allow testing and correction.
ERP and Tax Engine Configuration for Sugar-Based Excise
This is where many organisations underestimate the change. Under the old ad-valorem system, excise was often calculated downstream, linked to pricing modules. That approach no longer works. The 2026 model requires excise logic embedded upstream.
Systems must support:
- SKU-level sugar tier attributes
- Fixed AED-per-litre rates
- Accurate unit-of-measure conversions
- Dilution logic for concentrates
- Automated excise determination independent of price
For groups operating across multiple channels, this becomes a core excise tax management issue – not just a compliance task.
Master Data Discipline Is No Longer Optional
SKU master data must now include:
- Sugar content reference
- Applicable excise tier
- Volumetric rate
- Product form
- Lab certificate ID
If master data is wrong, every downstream calculation is wrong. This is why excise tax services UAE engagements increasingly involve master-data remediation, not just return preparation.
Internal Controls and Audit Trails Expected by the FTA
The FTA does not expect perfection. It expects governance. Typical expectations include:
- Segregation between product formulation, tax classification, and filing
- Documented review of tier assignments
- Periodic lab retesting protocols
- Reconciliation of excise calculations to inventory movements
- Clear retention of supporting documentation
When these controls exist, audits move faster. When they do not, scrutiny increases.
Transitional Treatment for Pre-2026 Stock
This remains an area where formal guidance may evolve.
However, current indications suggest careful documentation will be critical for:
- Goods produced or imported before 1 January 2026
- Sold or distributed after the go-live date
Businesses should be prepared to demonstrate:
- Production or import dates
- Applicable excise regime at the time
- Clear inventory segregation
Until further clarification is issued, conservative positioning is advisable – a common recommendation under excise tax advisory Dubai reviews.
Financial Modelling - Pricing, Margin, and Cash-Flow Implications
The tiered volumetric model does not just change how excise is calculated. It changes who absorbs it, when it is paid, and how visible it becomes inside the P&L. For many businesses, the biggest impact will not be the tax itself – but the friction it creates across pricing, trade spend, and working capital.
Excise Costs Cascade Through the Pricing Ladder
Volumetric excise is charged early. At production. At import. Before the product ever reaches the shelf. That means excise becomes part of:
- Ex-factory pricing
- Landed cost
- Distributor margins
- Retail pricing decisions
Unlike ad-valorem excise, which flexed with price movements, volumetric excise is fixed. A price promotion does not reduce the tax. A discount does not soften the burden. This rigidity is why excise tax in the UAE will feel more immediate from 2026 onward.
High-Sugar Products Face the Sharpest Margin Compression
Products in the ≥8 g tier absorb AED 1.09 per litre, regardless of market positioning.
For:
- Entry-level brands
- Price-sensitive categories
- High-volume SKUs
That cost is difficult to pass through fully. Margins narrow first. Then trade spend gets squeezed. Then SKU rationalisation begins. This is already visible in internal modelling exercises led by excise tax advisory services in the UAE.
Why Passing the Tax to Consumers Is Not Always Possible
In theory, excise is often described as a “pass-through tax.” In practice, that assumption breaks down quickly. Retail price ceilings. Competitive pressure. Consumer price sensitivity. For many products, especially in convenience retail, price elasticity limits how much excise can be passed on.
The result?
- Partial absorption by manufacturers
- Margin erosion at distributor level
- Reduced promotional flexibility
Excise becomes a silent cost rather than a visible line item.
Low- and Zero-Sugar Products Gain Structural Pricing Advantage
The flip side matters just as much. Products below 5 g per 100 ml carry zero volumetric excise.
That advantage compounds.
- Lower landed cost
- Greater pricing flexibility
- More room for trade investment
- Stronger promotional resilience
Over time, this reshapes shelf economics.
Low-sugar products do not just align with health policy. They align with margin protection. This is one reason portfolio reformulation discussions are accelerating under excise tax management reviews.
Cash-Flow Planning Becomes Critical Under Volumetric Excise
Excise is payable on:
- Production, or
- Import, or
- Release from designated zones
Not on sale. This timing matters. Under a volumetric model, excise payable is predictable, but it is also front-loaded.
Businesses with long inventory cycles face:
- Earlier cash outflows
- Higher working capital requirements
- Greater sensitivity to demand fluctuations
This is particularly acute for high-volume importers.
Filing Deadlines and Payment Timing
Excise returns must be filed through EmaraTax within prescribed deadlines. Late payment penalties apply regardless of whether goods have been sold.
This creates a clear linkage between:
- Inventory management
- Cash-flow forecasting
- Excise tax compliance
Where forecasting is weak, liquidity pressure builds quickly.
Scenario Modelling Is No Longer Optional
Under the 2026 model, financial modelling must move upstream. Boards increasingly ask:
- What happens if sugar content increases slightly due to input variability?
- What is the margin impact if a product crosses the 5 g or 8 g threshold?
- Is reformulation cheaper than absorbing excise over three years?
These are not theoretical questions. They sit at the intersection of tax, finance, and product strategy, exactly where excise tax advisory Dubai teams are now most active.
Inventory Risk Under Fixed Excise Rates
One overlooked issue is inventory exposure. If excise is paid upfront on high-sugar stock and market conditions change – price pressure, demand shifts, reformulation – the excise cannot be recovered.
That sunk cost risk grows with:
- Large production runs
- Slow-moving SKUs
- Seasonal products
This reinforces the case for tighter SKU governance.
Strategic Response - Reformulation, Portfolio Design, and Market Positioning
Once the numbers are modelled and the systems are scoped, a harder question surfaces. Do you absorb the excise? Pass it on? Or redesign the product itself? The tiered volumetric model quietly pushes companies toward that third option.
Threshold-Driven Reformulation Strategies
The new excise framework introduces cliffs, not slopes.
Crossing 5 g or 8 g per 100 ml does not gradually increase tax.
It triggers a step-change.
That makes reformulation economics unusually binary.
A reduction of 0.3 g per 100 ml can eliminate excise entirely.
A reduction of 1.2 g can move a product down a tier.
This is why reformulation discussions now start with tax thresholds, not taste panels.
Reformulation Is No Longer Just an R&D Decision
Historically, reformulation was driven by:
- Cost of ingredients
- Consumer preference
- Shelf life
Now tax joins the list.
For many manufacturers, excise tax in the UAE has become a design constraint.
But reformulation carries risk:
- Taste drift
- Brand perception
- Consumer rejection
- Increased use of sweeteners
This is where excise tax advisory services in the UAE often sit in joint workshops with R&D and finance teams, aligning tax outcomes with commercial reality.
Portfolio Rationalisation Becomes Inevitable
Not every SKU deserves saving.
Under volumetric excise, some high-sugar products become structurally uncompetitive.
Common outcomes include:
- Discontinuing marginal SKUs
- Reducing pack sizes to manage absolute excise per unit
- Prioritising low-sugar line extensions
- Accelerating zero-sugar variants
This is not about health messaging. It is about portfolio efficiency. Excise acts as a filter.
Artificial Sweeteners: Short-Term Relief, Long-Term Question
Artificial sweeteners offer a clear tax advantage today.
Zero sugar.
Favourable classification.
Lower excise burden.
But the policy direction is not neutral.
WHO guidance is evolving.
Public scrutiny is increasing.
Future excise treatment may change.
From an excise tax advisory Dubai perspective, artificial sweeteners are a tactical lever — not a strategic endpoint.
Over-reliance increases future regulatory risk.
Channel-Specific Pricing Strategies Matter More Than Ever
The same product behaves differently across channels.
Supermarkets absorb price changes differently from convenience stores.
HORECA operates under different margin logic entirely.
Volumetric excise forces sharper channel thinking:
- Supermarkets may tolerate gradual price increases
- Convenience retail amplifies price sensitivity
- HORECA may internalise excise within menu pricing
One-size-fits-all pricing rarely works.
This is why excise tax services UAE increasingly intersect with commercial strategy teams.
Pack Size as a Strategic Lever
While excise is charged per litre, pack size still influences consumer psychology.
Smaller packs:
- Reduce absolute excise per unit
- Lower shelf price points
- Improve affordability perception
This does not eliminate excise.
But it can soften consumer resistance.
Expect to see pack redesigns alongside reformulation.
Market Positioning Under Sugar-Based Excise
The tax creates new narratives — whether brands want them or not.
Low sugar becomes a price advantage.
High sugar becomes a premium cost.
Brands that move early control the narrative.
Those that react late absorb it.
This is one of the quieter insights emerging from excise tax management reviews across the sector.
Cross-Border and GCC Context
The UAE’s tiered volumetric model does not exist in isolation. It sits inside a wider GCC excise framework, global health-tax coordination, and cross-border trade reality. Understanding that context matters – especially for businesses operating regionally or managing parallel imports.
Alignment With GCC Health-Tax Coordination
GCC excise taxes were designed to be harmonised. Common product categories. Aligned principles. Shared public-health objectives. While implementation details vary by country, the UAE’s move toward sugar-content-based taxation is consistent with the broader direction across the region.
Other GCC states already tax sweetened beverages. Some are actively reviewing volumetric or tiered approaches. This means the UAE’s reform should not be read as an outlier. It is a signal. For regional groups, this reduces the likelihood that sugar-based excise remains UAE-only in the medium term.
Regional Consistency vs Local Flexibility
Harmonisation does not mean uniformity. Each GCC state retains discretion over:
- Tax rates
- Thresholds
- Product definitions
- Exemptions
That creates a landscape where compliance is aligned in principle but fragmented in execution.
For businesses relying on excise tax services in UAE with regional operations, this requires:
- Country-specific SKU classification
- Separate lab evidence strategies
- Jurisdiction-specific pricing models
Assuming full alignment creates risk.
Cross-Border Price Differentials and Trade Behaviour
Volumetric excise creates visible price differences.
A high-sugar drink taxed at AED 1.09 per litre in the UAE may be cheaper in a neighbouring market with lower or different excise.
That differential matters.
It can incentivise:
- Parallel imports
- Informal trade flows
- Grey-market sourcing
None of this is theoretical. It has been observed in jurisdictions that moved to sugar-based excise. From an excise tax compliance perspective, this raises enforcement and valuation challenges.
Import Controls and Documentation Become More Important
Where price gaps widen, scrutiny follows.
Expect closer attention on:
- Import declarations
- Product classification accuracy
- Sugar content verification for imported goods
- Transfer pricing and related-party transactions
This reinforces the need for robust excise tax audit readiness, particularly for importers.
Lessons From International Sugar Tax Regimes
Globally, a few patterns repeat.
- Reformulation accelerates
Companies quickly target thresholds once tax cliffs appear. - Consumption patterns shift
High-sugar products lose volume over time. - Policy tightens, not loosens
Thresholds and rates tend to evolve, rarely reverse. - Compliance complexity increases
Especially around concentrates, blends, and new product categories.
The UAE’s model reflects these lessons, especially the use of clear thresholds and volumetric rates.
Public Health, Economic Impact, and Forward-Looking Implications
The tiered volumetric model is often framed as a tax reform.
It is more accurate to see it as a behavioural instrument — one that uses excise mechanics to reshape product design, pricing decisions, and long-term consumption patterns.
That distinction matters.
Evidence Shows Reduced Sugar Consumption and Health Risk
International experience is consistent.
Where sugar-based excise taxes are introduced:
- Average sugar intake declines
- Reformulation accelerates
- High-sugar products lose relative shelf share
WHO and EMRO studies show that tiered SSB taxes reduce sugar consumption without collapsing demand or eliminating consumer choice. Consumers still buy beverages. They just buy different ones. This is the outcome the UAE is targeting.
Health Taxes and Fiscal Sustainability
From a fiscal perspective, sugar excise is unusually effective.
It:
- Raises stable revenue
- Does not rely on income growth
- Aligns taxation with public-health costs
Over time, revenue may soften as reformulation increases, but this is expected and planned for. In policy terms, success is less sugar, not more tax.
Equity and Affordability Considerations
Critics often label health taxes as regressive. The counterpoint is important. Sugar-based excise is avoidable.
Consumers can shift to:
- Low-sugar products
- Zero-sugar alternatives
- Smaller pack sizes
At the same time, tax revenue supports public health systems that disproportionately benefit lower-income populations. The UAE’s tiered design, especially the zero-excise <5 g band – mitigates equity concerns more effectively than flat ad-valorem taxes.
Final Thought
From 2026, excise tax in the UAE stops asking how much a drink costs. It asks what is inside it. That single shift changes everything. For businesses that understand it early, the tiered volumetric model is manageable – even advantageous. For those that react late, it becomes expensive. Sugar is no longer just an ingredient. It is a tax driver. And in this framework, design decisions are tax decisions.
FAQs:
There is no fixed rule, but retesting is expected when formulations change, ingredients vary, or results sit close to tier thresholds. Annual testing is common for borderline products.
Only if they remain valid, traceable, and representative of current formulations. Older reports increase audit risk.
Use conservative classification, frequent testing, and documented variance controls.
Typically no — but excise volume calculations must be updated. Documentation remains critical.
Exports may be eligible for relief, but require clear segregation and evidence.
Manufacturer instructions, technical specifications, and consistent application across filings.
Yes, if MOIAT-accredited and properly linked to the registered product. Ultimate responsibility remains with the registrant.
Excise is applied independently of transfer pricing, but excise costs influence margins and pricing structures.
Formal launch checklists, pre-registration review, and temporary SKU governance.
Product registrations must be updated and excise applied based on the effective formulation date.
Excise already paid is not refundable simply due to discontinuation.
Each excise product must be calculated separately, regardless of bundle pricing.
Yes. UAE lab results prevail for excise purposes.
A central one. Formulation decisions now directly affect tax liability.
By comparing reformulation cost versus long-term excise absorption across volumes and time.
References
- Federal Tax Authority, United Arab Emirates. Calculating Excise Tax According to a Tiered‑Volumetric Model for Sweetened Drinks. Accessed December 2025.
https://tax.gov.ae/en/taxes/excise.tax/excise.tax.topics/calculating.excise.tax.according.aspx. tax.gov.ae - Federal Tax Authority, United Arab Emirates. “Federal Tax Authority Clarifies New ‘Tiered Volume’ Excise Tax Mechanism for Sweetened Drinks.” Accessed December 2025.
https://tax.gov.ae/en/media.centre/news/federal.tax.authority.clarifies.new.aspx - Ministry of Finance, United Arab Emirates. “Ministry of Finance Announces New Amendments to the Excise Tax for the Tiered Volumetric Model on Sweetened Beverages.” December 11, 2025.
https://mof.gov.ae/en/news/ministry-of-finance-announces-new-amendments-to-the-excise-tax-for-the-tiered-volumetric-model-on-sweetened-beverages/ - PricewaterhouseCoopers (PwC) Middle East. “UAE Excise Tax: New Tiered‑Volumetric Model of Excise Tax for Sweetened Drinks.” September 18, 2025.
https://www.pwc.com/m1/en/tax/documents/2025/uae-excise-tax-new-tiered-volumetric-model-of-excise-tax-for-sweetened-drinks.pdf - MBG Corporation. “Excise Tax for Sweetened Drinks in UAE: 2026 Tiered Model.” MBG Insights, December 2025.
https://www.mbgcorp.com/ae/insights/excise-tax-for-sweetened-drinks/ - Gulf News. “UAE Sets New Sugar‑Based Tax Tiers for Sweetened Drinks as 2026 Rollout Nears.” Accessed December 2025.
https://gulfnews.com/business/tax-news/uae-sets-new-sugar-based-tax-tiers-for-sweetened-drinks-as-2026-rollout-nears-1.500376447. Gulf News - Khaleej Times. “UAE Sugar Tax: Highly Sweetened Drinks to Pay More, Artificial Sweeteners 0%.” Accessed December 2025.
https://www.khaleejtimes.com/uae/tiered-volumetric-model-apply-excise-tax-sweetened-drinks - Andreyeva, Tatiana, et al. “Outcomes Following Taxation of Sugar‑Sweetened Beverages: A Systematic Review and Meta‑analysis.” JAMA Network Open 5, no. 6 (June 1, 2022). https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2792842
- World Health Organization. Taxes on Sugary Drinks: Why Do It? WHO, 2016.
https://iris.who.int/bitstream/handle/10665/260253/WHO-NMH-PND-16.5Rev.1-eng.pdf - Basu, Sanjay, et al. “Sugar‑Sweetened Beverage Taxes and Population Health Outcomes.” Frontiers in Nutrition (2024).
https://pmc.ncbi.nlm.nih.gov/articles/PMC9221582/ - Thow, Anne Marie, et al. “A Systematic Review of the Effectiveness of Food Taxes and Subsidies to Improve Diets: Understanding the Recent Evidence.” Nutrition Reviews 72, no. 9 (2014). https://pmc.ncbi.nlm.nih.gov/articles/PMC9285619/
- World Bank. Global Sugar‑Sweetened Beverage (SSB) Tax Database, Data Resource.
https://ssbtax.worldbank.org/. ssbtax.worldbank.org - Gittelsohn, Joel, et al. “Pricing Strategies to Encourage Availability, Purchase, and Consumption of Healthy Foods and Beverages: A Systematic Review.” Preventing Chronic Disease 14 (2017): e107. https://pmc.ncbi.nlm.nih.gov/articles/PMC9285619/
- Powell, Lisa M., et al. “Assessing the Potential Effectiveness of Food and Beverage Taxes and Subsidies for Improving Public Health: A Systematic Review.” Obesity Reviews 14, no. 2 (2013): 110‑128. https://pmc.ncbi.nlm.nih.gov/articles/PMC9285619/
