UAE's sugar tax plan to 'incentivise' drink brands to deliver healthier options

New tiered tariff approach aims for bigger health benefits

Drinks in the UAE will soon be priced depending on the amount of sugar they contain per 100ml under a new amendment to the country's tax laws. Getty Images

Tax increases on sugar loaded drinks have been backed by soft drink producers and experts who said the move will push companies to offer healthier choices.

From 2026, all UAE drinks will be priced according to their sugar content, per 100ml serving. Although it is not yet clear if new tariffs will affect alcoholic beverages, the drinks industry is braced for change.

A departure from the flat rate sugar tax, will see the most calorific drinks hit with higher taxes to push consumers away from unhealthy options. The UAE has some of the region’s highest rates for diabetes at about 20 per cent of the adult population, a condition exacerbated by sugar-sweetened drinks.

Manufacturers have been exploring alternatives to sugar, such as the plant-based stevia, to sweeten drinks. But one of the world’s largest soft drinks producers, PepsiCo, said consumer choice will always be driven by taste.

“We see this tax as allowing consumers to have more choices by allowing the industry to really innovate and reformulate products,” said Wael Ismail, vice president for corporate affairs, Africa, Middle East and South Asia, PepsiCo.

“Because of the tax brackets and how they're structured it allows the industry to invest more in awareness campaigns and research. We've seen this work in other places where this type of structure allows the industry to reformulate, innovate and offer consumer choices.

“Consumers will catch up to these trends, but our focus is really on taste. People like our products because of the recipes of the formulas that use sugar, but it's not the only component. As long as we're meeting consumer demands and tastes, we will always have a role to play.”

Reformulated products

Two of PepsiCo’s most popular products are Pepsi-Cola and Mountain Dew. A reformulation of regular Pepsi sold in supermarkets and retailers has seen the sugar content reduced from 36g of sugar in a regular 330ml can to 15g. Mountain Dew is one of the most sugar laden soft drinks with each 355ml can containing a staggering 46g of sugar.

By 2025, PepsiCo aims for at least two-thirds of its drinks sales volume to have 100 calories or less from added sugars per 355ml serving, which equates to about 26g of sugar.

Wael Ismail, vice president for corporate affairs, Africa, Middle East and South Asia, PepsiCo, welcomed a new UAE sugar tax, but said consumer choice will always be driven by taste. Photo: PepsiCo

“Back in 2017 when this tax was first introduced we went from an environment with no taxes to an environment with very high taxes,” said Mr Ismail.

“This had an impact on volumes, but markets have stabilised, since. We see this new change in the tax regime as fundamentally showing how the UAE and Gulf countries want to work with industry to consult, collaborate to find these win-win solutions.”

Many soft drinks manufacturers have evolved to suit changing markets, by reducing the size of cans or developing sugar-free alternatives. Coca-Cola is also modifying products to suit consumer tastes and new tax bands.

The company said it was committed to making more reduced and no-sugar versions of drinks, while making them easier to find.

In 2023, 30 per cent of drinks sold by Coca-Cola were low or no calorie, while 68 per cent of products contained less than 100 calories per 355ml serving.

International approach has mixed success

The tiered sugar tax set for the UAE has been in place in South Africa since 2018.

The Health Promotion Levy is fixed at 2.1 per cent per gram of sugar above 4g per 100ml, but has had a mixed effect in a nation where 70 per cent of women are obese or overweight, and one in three men.

As taxes were not ring fenced for health services, just ZAR38 million (Dh7.8m) of the ZAR7.9 billion (Dh1.63bn) collected was used to promote healthy living, while the sugar industry suffered 16,621 job losses.

There was, however, a 29 per cent reduction in average consumption of carbonated drinks per household.

In the GCC, consumer choices have changed significantly since the sugar tax was first introduced in 2017, and the price of some soft drinks doubled overnight.

A cross-sectional study by King Fahd Hospital in Madinah showed a 19 per cent decrease in soft drinks consumption after taxation in Saudi Arabia, with a 75 per cent reduction among obese participants.

In the UAE, however, the results from the first sugar tax were less conclusive. A study conducted by the Dubai Health Authority and University of Ontario showed no statistically significant change in consumption of sugar sweetened drinks by gender, age or nationality.

It is not yet clear if the new sugar taxes will include alcoholic drinks. While most beers contain up to 3g of sugar per 355ml serving, some wines can contain about 8g per 148ml glass. Cider is generally the most sugary alcoholic drink with a 473ml glass containing up to 21g of sugar.

"The results of the 2017 UAE sugar tax were not exactly a revolution, but not bad either,” said Shamma Al Falahi, partner, Head of the Tax Department at BSA Law.

“Sales of sugary drinks dropped from 7.4 per cent to 5.9 per cent of the beverage market, according to World Health Organisation data.

“The new tiered system is expected to incentivise healthier formulations and make healthier beverages more affordable and accessible.

“It means new compliance costs for businesses, registration, and the need to rethink reformulating the products. Wealthier consumers are less sensitive to price hikes and may accept paying off the extra cost.

“However, evidence from other countries suggests that sugar taxes can still be effective in reducing consumption among vulnerable populations, such as young people and low-income consumers, who are more responsive to changes in relative prices.”

The UAE Ministry of Finance said the recent amendment to the excise tax on sugar-sweetened beverages was only preliminary,

When asked about the addition of sugar taxes to include alcoholic beverages, a spokesperson said “additional details will be announced in due course to support businesses in achieving full compliance with an updated policy”.

A review of the region’s sugar tax by the WHO found further taxation had the potential to reduce childhood obesity in Saudi Arabia from 38 per cent in 2020, to 34 per cent by 2030. In the UAE, the potential is to reduce the rate from 37 per cent, to 34 per cent.

Health implications

Reshma Devjani, a clinical dietician at Fakeeh University Hospital Dubai, said fewer than 10 per cent of a child’s calorie intake should be derived from free sugars.

“Reducing sugar content will help cut down on a concentrated source of calories and carbohydrates,” she said.

“This could reduce weight gain and obesity, type 2 diabetes, metabolic syndrome, dental caries and heart health.”

According to the World Bank, there are 117 nations and territories now subject to a tax on sugary drinks, affecting 57 per cent of the global population.