The UAE will impose a 50% tax on carbonated soft drinks and a 100% tax on energy drinks, as part of new fiscal measures announced today.
The tax will be applied directly to the retail price of the product and will take effect from the fourth quarter of the year.
It’s not clear whether there is a minimum level of caffeine required in order for energy drinks to be taxed, but FoodBev understands that the levy on energy drinks alone could bring in $200 million a year.
The move is aimed at better protecting the Emirates’ economy from changes in the price of crude oil, which has fallen from a high of $156 a barrel in 2008 to $51 a barrel this month. In January 2016, it bottomed out at $29 per barrel – its lowest level for 14 years – which spells trouble for an oil-dependent economy like the UAE.
Analysis: A tax on carbonation
The UAE’s new tax on certain products, including energy drinks and carbonated soft drinks, is a change of tack for two reasons. First, this is a new direction for the UAE, which is still tax-light but has – as much as possible – avoided taxing the sale of products directly. And this is a more aggressive strategy for tackling high-sugar products in the same vein as Mexico’s $0.05 per litre tax on sugary soft drinks, approved in 2013.
Unlike other sugar legislation – such as the levy waiting to take effect in the UK – the UAE’s soft drinks tax is not connected to the amount of sugar in the product. Instead, it’s a tax on carbonation. Sparkling water is carbonated, as are sugar-free versions of popular soft drinks – the implications of this new tax on those categories are complicated and vast.
The UAE will also introduce a 5% rate of value added tax (VAT) from January 2018. It’s the first time that the country has applied a general rate of VAT, having previously preferred to tax products at the point of import.
Around 100 food and drink items will be exempt from the rate of VAT, which is expected to raise more than $3.2 billion in the first year.
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