The Board of Directors of the Zakat, Tax and Customs Authority in the Kingdom of Saudi Arabia announced the issuance of an important decision approving the amendment of a number of provisions of the executive regulations of the Selective Tax System, a decision that is scheduled to enter into force as of January 1, 2026. This decision constitutes a fundamental shift in the methodology of taxing sweetened beverages, as the mechanism moves from a fixed percentage to a methodology that depends on the total amount of sugar.
Details of the new methodology and graded slides
The authority explained in its statement that the new amendments included changing the method of calculating the excise tax to be based on "gradual tax brackets." Under this system, the tax amount will be determined based on the amount of sugar present in each 100 ml of the ready-to-drink beverage. This step replaces the current system, which imposes a fixed tax rate of 50% of the beverage's retail price, regardless of its nutritional content or sugar content.
What beverages are covered by the decision?
The regulations provide a precise definition of sweetened beverages subject to this amendment, encompassing any product to which any source of sugar or other sweeteners has been added and which is produced for consumption as a beverage. This definition is not limited to ready-made liquids but extends to include:
- Ready-to-drink beverages.
- Concentrates and powders.
- Gels and extracts.
- Any other image can be turned into a drink.
Public health context and the Kingdom's vision
This decision cannot be viewed in isolation from the strategic directions of the Kingdom of Saudi Arabia in the public health and quality of life sector. The shift towards linking the tax to sugar consumption is part of efforts to combat chronic non-communicable diseases, such as diabetes and obesity, which pose a significant health challenge in the Gulf region. This amendment aims to encourage a healthy lifestyle in line with the goals of the Kingdom's Vision 2030 by reducing the consumption of added sugar, which is a concern raised by global health organizations.
Expected economic and industrial impact
From an economic and industrial perspective, the new approach aims to create an environment conducive to innovation among beverage manufacturers and importers. Instead of simply raising prices, the new system will incentivize companies to reformulate their products to reduce sugar content in order to fall into a lower tax bracket, thus providing consumers with healthier options at competitive prices. This approach aligns with international best practices that have proven successful in other countries that have implemented specific taxes on sugar.
Joint Gulf Coordination
The authority indicated that this decision is based on the outcomes of the Financial and Economic Cooperation Committee of the Gulf Cooperation Council (GCC) countries, which approved amending the calculation mechanism to adopt a graduated scale approach. This agreement reflects the GCC countries' commitment to unifying tax and economic policies, particularly those related to public health and consumer protection, thereby strengthening the integration of the Gulf Common Market and ensuring the application of uniform standards to both imported and locally manufactured products.
