Sugary drinks to cost more in UAE from January 2020

The UAE Cabinet has approved a proposal to impose 50 percent excise tax on products with added sugar and sweeteners.

The UAE will levy an excise tax on additional sugary and smoking products from next year in order to reduce the consumption of these unhealthy products linked to chronic diseases.

The UAE Cabinet has approved a proposal to impose 50 percent excise tax on products with added sugar and sweeteners, whether in the form of a beverage, liquid, concentrate, powders, extracts or any product that may be converted into a drink. While 100 percent excise tax will be levied on electronic smoking devices - whether or not they contain nicotine or tobacco - liquids used in electronic smoking devices will also be levied the same tax.

From October 2017, the UAE started to levy 50 percent "sin tax" on sugary and energy drinks and 100 percent tax on smoking products in order to curb the consumption of these harmful products.

Anurag Chaturvedi, the managing partner at Chartered House Tax Consultancy, said the new products which are likely to be included in the list are candies, cookies, cakes, pastries, pies, doughnuts, canned juices, ice creams, yogurts, milkshakes, etc.

"We have already seen the impact on energy drinks, where a fall of 65 percent in sales was reported after the introduction of the excise tax. Definitely, I see a reduction in the sale of these products as the prices shall go up. With VAT already being levied on these products and with the addition of excise tax, prices will go up and consumers automatically shall reduce the consumption of these products," said Chaturvedi.

He said UAE businesses must expedite their process as of January 1, 2020, provides not too much time for companies to upgrade their systems, educate their employees and be prepared for this new introduction of excise levy on products with added sugar and sweeteners.

A statement released by the Cabinet General Secretariat said that manufacturers of these sugary products must clearly identify the sugar content to make it easier for the consumers to make sensible healthy choices.

Nirav Shah, director at Fame Advisory DMCC, said it would be very interesting to see what this list will include as sweetened beverages could be as common as soft drinks, or the authorities will restrict it to excessive sugary sports drinks only.

"Inclusion of e-cigarette is interesting too, as their contention has been that they do not contain tobacco and used frequently by people trying to stop tobacco consumption. Moreover, all of these items will have to comply with stringent requirements for sale in local markets, similar to other products covered in excise," Shah said.

The UAE will also add tobacco products used in shisha under excise tax from the fourth quarter of this year, prohibiting the import of any type of shisha tobacco into the country if they don't bear the digital marks.

The UAE enjoys one of the highest tax compliance rates of close to 100 percent for tax return requirements of excise tax, which is estimated to generate up to Dh7 billion in annual revenues for the UAE federal budget. With the addition of new items under the "sin tax", revenues are expected to increase next year. The UAE also imposed five percent value-added tax (VAT) on a host of goods and services from January 2018, which helped the UAE raise Dh27 billion.