As of 1 January 2026, there is a major reform of the excise tax regime in Saudi Arabia that is applicable to sweetened beverages. This reform is a significant change in the Kingdom’s tax policy that has far-reaching consequences for food and beverage companies, FMCG businesses, importers, distributors and investors in the Saudi market.
The new framework replaces a long-standing flat excise tax with a progressive system, based on sugar, which will bring fiscal policy closer to achieving public health goals along with international best practices.
From Flat Rate to Sugar-Content Taxation: A Structural Shift
Before this year, all sweetened beverages—regardless of how much sugar they had—were hit with a 50% excise tax based on their retail price. Whether a product was packed with sugar or barely sweetened, the tax burden was the same.
Following amendments passed by the Zakat, Tax and Customs Authority (ZATCA), this has now been replaced by a four-tiered system of excise taxes, calculated on the actual sugar content (grams per 100 ml) of the product.
This change serves a dual purpose:
- Promote public health by curbing excessive sugar consumption
- Push for reformulation and fairer taxation in line with economic and regulatory efficiency
The result? A policy that not only reflects global best practices but also nudges the industry toward healthier offerings.
The New Four-Tier Tax System
Under the updated law, sweetened beverages are now categorized into four distinct tiers:
Tier 1 – 0 g/100 ml
Products sweetened only with artificial (non-caloric) sweeteners
> Fully exempt from excise tax
Tier 2 – Low Sugar
> Less than 5 g of sugar per 100 ml
Tier 3 – Medium Sugar
Between 5 g and 7.99 g per 100 ml
Tier 4 – High Sugar
8 g or more per 100 ml
> Subject to the highest excise tax rate
In contrast to the old system, tax is now based on sugar volume—not the product’s retail price—creating a more proportional and targeted framework.
Scope Extends Beyond Beverages on Shelves
The reform’s impact stretches further than many companies might expect. ZATCA’s definition of “sweetened beverages” includes not just ready-to-drink products but also:
- Syrups and concentrates
- Beverage powders and gels
- Extracts and other products that can be diluted into drinks
This means FMCG companies previously outside the excise net may now fall within it. Those handling drink bases, flavoring compounds, or even powdered mixes must reassess their compliance positions and re-evaluate how their products are classified under the law.
A GCC-Wide Harmonisation Effort
This move isn’t happening in isolation. Saudi Arabia’s reform is part of a broader, GCC-wide initiative to align sugar taxation policies across member states. The GCC’s Financial and Economic Cooperation Committee has endorsed this shift toward a volumetric, sugar-based tax model.
The coordinated approach gives businesses greater clarity and consistency across regional markets, while reinforcing the region’s collective stance on public health regulation through fiscal tools.
What Businesses Need to Do—Now
For companies in the food, beverage, and FMCG space, the tax reform isn’t just a matter of ticking compliance boxes. It triggers strategic, operational, and even product-level decisions. Key areas of focus include:
- Tax compliance – Measuring and documenting sugar content accurately; updating product specifications accordingly
- Correct product classification – Assigning the right tier under ZATCA guidelines to avoid misclassification risks
- Pricing strategy – Navigating new margin pressures and renegotiating commercial contracts if needed
- Reformulation – Adjusting recipes to optimize tax treatment without alienating consumers
- Customs and import processes – Ensuring product declarations remain consistent across technical specs, customs filings, and excise submissions
- Audit readiness – Preparing for increased oversight from ZATCA and mitigating the risk of disputes or penalties
How AHYSP Can Support Your Business
As this new regulatory landscape takes shape, AHYSP Law Firm continues to support both domestic and international businesses in navigating the transition. Our services cover:
- Full-spectrum excise and indirect tax compliance
- Legal risk assessments under the new sugar-based tax model
- Product strategy and reformulation planning to meet both tax and regulatory demands
- Representation during ZATCA audits, assessments, and disputes
- GCC-wide tax alignment for multinational FMCG portfolios
This reform isn’t just a tax tweak—it’s a structural overhaul that directly impacts how products are priced, marketed, and manufactured. Businesses that adapt early will be best positioned to absorb the changes, stay compliant, and maintain a competitive edge in a transforming Saudi marketplace.
