In a significant policy shift, the Gulf Cooperation Council (GCC) is replacing its flat 50% excise tax on sweetened drinks with a nuanced, four-tier sugar-based system effective January 2026. This move transitions the tax regime from a blunt instrument to a targeted policy, directly linking a drink's financial cost to its sugar content. For B2B players in the food and beverage sector, this isn't merely a compliance update—it's a fundamental reshaping of the competitive landscape. This analysis provides a strategic overview of the new framework and outlines a proactive path for businesses to navigate this change, protect profitability, and uncover new opportunities in the GCC market.

Understanding the Shift: From a Flat Tax to a Tiered System

Since its inception, the GCC's excise tax on sweetened beverages has stood at a uniform 50% of the retail price, applying equally regardless of a product's sugar content. While simple to administer, this approach offered no incentive for manufacturers to reformulate products toward healthier options.

The new system, approved by the GCC’s Financial and Economic Cooperation Committee, abandons this one-size-fits-all model. It adopts a volumetric methodology, calculating the tax based on the grams of sugar per 100 milliliters of ready-to-drink beverage. This precise linkage of tax liability to actual sugar content directly aligns financial cost with public health objectives, encouraging manufacturers to reduce sugar levels in their products.

Saudi Arabia's Zakat, Tax and Customs Authority (ZATCA) has taken a leading role, releasing draft amendments for public consultation to ensure a smooth transition for importers and manufacturers before the January 2026 implementation.

Decoding the New Four-Tier Tax Structure

The incoming regulations create four distinct tax brackets, fundamentally changing how businesses calculate their tax obligations. The structure is defined as follows:

Tiers 1 & 2 (Zero-Tax Tiers): Beverages containing 0g of sugar (with only artificial sweeteners) or less than 5g of sugar per 100ml will be subject to an excise tax of 0 Saudi Riyals (SR) per litre. This creates a powerful incentive for the production and sale of sugar-free and low-sugar options.

Tier 3 (Medium-Sugar): Drinks with a sugar content between 5g and 7.99g per 100ml will incur a tax of 0.79 SR per litre.

Tier 4 (High-Sugar): Beverages containing 8g or more of sugar per 100ml will face the highest levy of 1.09 SR per litre.

This tiered system creates clear financial incentives. Reformulating a product to move it from Tier 4 down to Tier 3, for example, reduces tax liability by 0.30 SR per litre—a significant saving that scales directly with production volume.

An Expanded Scope: What Products Are Affected?

The scope of the excise tax extends far beyond traditional soft drinks. The regulation applies comprehensively to all products containing added sugars or artificial sweeteners intended for consumption as beverages. This includes:

Ready-to-drink beverages: Carbonated soft drinks, juices, energy drinks, and flavored milk.

Concentrates, powders, and gels: Products that consumers convert into a drink by adding water or other liquids.

Extracts and syrups: Similarly, any substance designed to be transformed into a beverage falls under this tax umbrella.

This broad definition means B2B suppliers of ingredients, concentrates, and finished products must all evaluate their exposure.

Strategic Implications for the B2B Landscape

For businesses operating in the GCC, this tax reform presents both challenges and opportunities that demand strategic attention

1. Supply Chain and Cost Structure Reassessment

The direct cost of goods sold will change disproportionately across product portfolios. High-sugar beverages (Tier 4) will see a significantly different cost profile compared to lower-sugar and sugar-free alternatives (Tiers 1-3). This necessitates a full reassessment of cost structures, profit margins, and supply chain logistics for every SKU. The volumetric nature of the tax makes lightweighting packaging a less relevant strategy; the focus shifts squarely to sugar content itself.

2. Product Portfolio and R&D Transformation

The most immediate strategic lever is product reformulation. Research and Development (R&D) must prioritize creating products that deliver satisfying taste with lower sugar content to achieve a more favorable tax tier. Alternatively, innovation can focus on expanding sugar-free and artificially sweetened product lines (Tiers 1 and 2) which carry no excise tax, creating a powerful price advantage in the market.

3. Financial Planning and Compliance Readiness

Finance and accounting teams must prepare for a more complex tax calculation and reporting environment. Instead of a single tax rate applied to value, companies must track the sugar content of each product and apply the correct volumetric tax rate. ZATCA has announced awareness workshops to clarify technical requirements, and proactive engagement is crucial.

A Proactive Roadmap for Your Business

Navigating this transition successfully requires a structured, cross-functional approach.

Conduct a Comprehensive Portfolio Audit: Immediately map your entire product portfolio against the new tiered structure. Identify which products are most vulnerable to higher taxes and prioritize them for strategic review.

Engage in Strategic Reformulation: Initiate R&D projects to reformulate high-risk products. The goal should be to reduce sugar content to cross the threshold into a lower tax bracket without compromising brand identity.

Revise Pricing and Marketing Strategies: Develop new pricing models that reflect the changed cost of goods. Marketing strategies should be realigned to promote low-sugar and sugar-free products, highlighting their benefits to health-conscious consumers.

Ensure Operational and Compliance Alignment: Work closely with your legal and compliance teams to understand the final implementing regulations. Engage with ZATCA's consultation process and planned workshops to ensure your operational reporting systems are fully prepared for the January 2026 deadline.

Turning Regulatory Change into Competitive Advantage

The GCC's new sugar tax is more than a fiscal policy; it is a strategic inflection point. While it introduces complexity, it also rewards agility and foresight. Businesses that act now to optimize their portfolios, innovate in product development, and align their operations with the new reality will not only mitigate risks but also uncover significant competitive advantages.

The companies that will thrive are those that view this not as a compliance burden, but as an opportunity to lead the market in meeting evolving consumer preferences for healthier options. The timeline is clear: implementation begins in January 2026. The time for strategic planning is now.

This guide is based on current public drafts and announcements. We recommend consulting with local tax authorities and legal experts for specific advice tailored to your business operations.