As the UAE and Saudi Arabia prepare to introduce sugar-based beverage taxes in 2026, attention is turning to which other Gulf countries might follow suit. The policy change marks a significant shift in how governments in the region are addressing both public health and fiscal planning, aiming to reduce sugar consumption while diversifying revenue sources away from oil.
Saudi Arabia’s Shift to Volumetric Taxation
Saudi Arabia, which introduced a flat 50% excise tax on sugary drinks in 2017, is now moving toward a more nuanced model. The country will switch to a volumetric tax system, where drinks are taxed based on their sugar content per 100 millilitres. The UAE is set to adopt the same structure in 2026, replacing its existing flat rate with a graduated tax that directly correlates to sugar levels in beverages. The higher the sugar content, the higher the tax, following a model already in use in countries like the UK, Mexico, and Singapore.
Samer Hasn, Senior Market Analyst at XS.com, believes that the shift is not an isolated experiment. “Other GCC countries will likely follow this trend of imposing a tax on sweetened beverages,” he noted. “Governments are under growing financial pressure due to declining oil revenues and rising healthcare costs.” The region’s soaring obesity and diabetes rates are also significant factors driving this change, with policymakers leveraging fiscal tools as a response to these health challenges.
Dual Purpose: Public Health and Financial Stability
The new tiered tax system reflects a broader trend across the GCC. It’s not just about raising funds for the state but also about addressing long-term health issues. The tax is seen as a tool to influence consumer behaviour, aiming to reduce the future burden of chronic diseases. Studies have already linked sugar-sweetened beverages to serious health conditions like cardiovascular disease and colorectal cancer. Hasn pointed out that the rising costs of managing these conditions have made prevention a national priority.
This shift in fiscal policy aligns with broader economic diversification goals. By reducing healthcare costs associated with sugary drinks, the tax system aims to help make public finances more sustainable. It also provides a steady stream of non-oil revenues, which can be redirected into areas like investment and research and development, further supporting the region’s long-term sustainability goals.
What This Means for Manufacturers
For beverage producers, the new tax structure will likely have a significant impact on pricing strategies. Companies will be forced to rethink their product offerings, focusing more on low- or no-sugar alternatives or even emphasising natural ingredients. Reformulating drinks to reduce sugar content or offering healthier options will come at a cost, especially as producing natural, unsweetened juices is more expensive than heavily sugared versions.
This change is expected to intensify competition in the market. “This could accelerate the competition between high-sugar and low- or zero-sugar brands,” Hasn said. Beverage companies will likely need to innovate, coming up with new flavours or healthier alternatives to stay competitive. As the tax encourages new product development, it could also create opportunities for brands to tap into the growing health-conscious consumer segment across the GCC.
Looking to the Future
As the UAE and Saudi Arabia lead the charge, other GCC countries are likely to closely monitor the effects of the sugar tax. Bahrain, typically aligned with Saudi fiscal policies, may adopt similar measures without much resistance. Oman, facing a tight fiscal balance, could see the tax as an additional revenue source, while Kuwait may encounter more public pushback, though it too faces health challenges. With rising healthcare costs and a pressing need for diversification, the move towards sugar taxes is quickly becoming a central piece of the region’s broader economic and public health strategies.
As Gulf governments look to create more sustainable, diversified economies, taxing sugar is seen as a practical solution that serves both fiscal and health purposes. The success of this model could encourage further policy shifts across the region, fundamentally changing the way Gulf countries address both public health and their economies.
