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The New Excise Tax Methodology in the Kingdom Saudi Arabia

Implementation of the Tiered Volumetric Method Effective from 2026

As part of the Kingdom of Saudi Arabia’s ongoing efforts to enhance its tax framework, strengthen compliance, and support public health objectives and fiscal sustainability, the Zakat, Tax and Customs Authority (ZATCA) has announced the implementation of a new methodology for calculating excise tax on certain excisable goods, effective from 2026. This methodology is referred to as the Tiered Volumetric Method.

This development forms part of a broader initiative aimed at aligning local tax legislation with international best practices, while striking a balance between tax revenue generation, reducing the consumption of harmful products, and promoting fair and equitable tax compliance. Under the previously applied excise tax framework, excise tax was calculated as a fixed percentage of the retail selling price of the excisable good. Under the new tiered volumetric approach, the tax burden will instead be linked to the volume or quantity of the product (e.g., liters or units), with different tax tiers applied based on predefined volume or content thresholds, irrespective of the commercial selling price of the product.

The primary objective of this methodology is to enhance tax equity by ensuring that the excise tax burden more accurately reflects the actual impact of the product on public health or the environment, rather than relying solely on market value.

The amendments specifically aim to shift the application of excise tax on sweetened beverages to a model based on total sugar content per 100 milliliters, replacing the previously applied fixed percentage rate. Under the new approach, excise tax will be calculated through graduated tiers determined by the total sugar content per 100 ml of ready-to-drink sweetened beverages. In addition, certain amendments have been introduced to the excise tax provisions to enhance clarity and ensure consistent application of the Excise Tax Law.

Scope of Application and Affected Products

The tiered volumetric excise tax model will apply exclusively to sweetened beverages, including carbonated beverages that fall within the definition of sweetened beverages. As a result, carbonated beverages will no longer be treated as a standalone category of excisable goods. The tiered volumetric model will not apply to beverages that naturally contain sugar and to which no added sugar or other sweeteners have been introduced, as such products are excluded from the definition of sweetened beverages for excise tax purposes (e.g., 100% natural fruit juices).

Energy drinks, electronic smoking devices (e-cigarettes), and liquids used in electronic smoking devices will remain subject to excise tax as a separate excisable goods category and will continue to be taxed at a rate of 100% of the retail selling price. Sweetened beverages will be classified into specific tiers based on sugar content, with different excise tax rates applied to each tier. This may lead to material differences in excise tax liabilities between products that are similar in price but differ in composition or sugar concentration.

Excise Tax Tiers for Sweetened Beverages

Tier 1

SAR 0 per liter – Sweetened beverages containing artificial sweeteners only and free from added sugar or other sweeteners.

Tier 2

SAR 0 per liter – Low-sugar sweetened beverages containing added sugar or other sweeteners with a total sugar content of less than 5 grams per 100 ml.

Tier 3

SAR 0.79 per liter – Medium-sugar sweetened beverages containing added sugar or other sweeteners with a total sugar content ranging from 5 to 7.99 grams per 100 ml.

Tier 4

SAR 1.09 per liter – High-sugar sweetened beverages containing added sugar or other sweeteners with a total sugar content equal to or exceeding 8 grams per 100 ml.

Compliance Considerations and Early Readiness

Transitioning to the tiered volumetric method requires early and proactive preparation by excise-taxable persons. Key considerations include:

• Reviewing existing product portfolios and assessing the potential impact of the new excise tax tiers.
• Ensuring accounting, tax, and reporting systems are capable of supporting volumetric-based excise calculations.
• Training tax, operations, and supply chain teams on the new regulatory requirements.
• Engaging early with tax advisors where uncertainty exists regarding product classification or tier determination.

Proactive planning remains critical to mitigating excise tax risks and avoiding potential penalties arising from misapplication or non-compliance.

Conclusion

The implementation of the tiered volumetric method for excise tax represents a significant regulatory milestone reflecting the continued evolution of the Saudi tax system. While the new methodology introduces operational and compliance challenges, it also presents an opportunity for businesses to reassess their processes and enhance excise tax compliance on more transparent and equitable grounds.

Andersen Saudi Arabia continues to support its clients in navigating excise tax developments and addressing their practical implications through tailored advisory and implementation solutions focused on business needs and sustainable tax compliance.

The Impact of current trending oil prices on the economic growth of Saudi Arabia

Due to the global oversupply of crude oil from non-OPEC countries and the weak global economy, which has led to decreased oil demand, oil prices have ranged between $56 and $60. However, with the anticipated decrease in political, trade (customs), and military tensions—which typically drive-up oil prices, oil prices are expected to fall to an average of $50 per barrel by 2026.

Given that the economies of the Gulf countries (according to World Bank reports) are expected to experience strong economic growth, potentially reaching 4.5%, and given that the IMF recently raised its forecast for Saudi Arabia’s economic growth by 0.5 percentage points to 4.5% in 2026, while also projecting growth of 3.6% in 2027 (a 0.4 percentage point increase compared to its previous report), this confirms the robust growth of the Saudi economy. This growth is attributed to the shift towards diversifying the non-oil sectors of the Saudi economy and reducing its reliance on oil revenues.

Therefore, oil prices are expected to remain below 2025 levels, reaching around $50 per barrel by mid- to fourth-quarter 2026, with the stabilization of oil market conditions, a decrease in geopolitical tensions, and anticipated resolutions to global conflicts such as the Russian-Ukrainian war and tensions in the Middle East and the Gulf region, particularly the tensions between Iran and the United States.

Regarding supply and demand factors, global oil demand is certain to slow due to reduced consumption resulting from the decline in global economic growth, especially in China, which has shown weak growth in recent years due to a slowdown in industrial activity. Conversely, oil supply from non-OPEC countries, such as the United States, Brazil, and Canada, has increased production levels, leading to a significant increase in supply and putting considerable downward pressure on prices, potentially reaching $50 per barrel by fourth-quarter 2026.

In conclusion, fluctuations in oil prices and the anticipated global price decline could lead to potential financial pressures on projected revenues. These financial pressures could result in reduced government spending and a slowdown in the implementation of strategic infrastructure projects in the Gulf countries, particularly in the Kingdom, should low oil prices persist for an extended period. This could impact on the sustainability of fiscal spending plans, potentially leading to significant reductions in some GCC countries. However, with the Kingdom’s strategic plans, most notably Vision 2030, the focus on diversifying revenue streams and prioritizing non-oil revenues, such as investments in entertainment and tourism, and supporting non-oil activities, the need for non-oil revenues is bolstered. This will accelerate the economic growth rate, projected at 4.5%, encouraging diversification and reducing reliance on oil exports.

To our valued clients at Andersen Saudi Arabia

As we begin a new and prosperous year, and as our great Kingdom continues its progress and prosperity towards glory and eminence, we would like to share with you the most important updates regarding taxes and zakat, which include the following:

• Tax Amnesty: Companies that have fallen behind on VAT, customs duties, or other taxes can benefit from the cancellation of fines and penalties if they complete compliance by the end of June 2026. Failure to meet deadlines before the end of the amnesty period may result in fines, so filing returns on time is crucial.
• Value Added Tax (VAT) and Electronic Invoicing: The second phase of electronic invoicing will become mandatory for a larger number of companies by March 31, 2026, with invoices being directly linked to the Authority’s invoicing system for amounts up to SAR 375,000.
• Real Estate Transaction Tax: Companies operating in the real estate sector must comply with the new regulations for Real Estate Transaction Tax.
• Excise Tax: Manufacturers, importers, and distributors of beverages must adjust their pricing and reporting for taxable sugar-sweetened beverages starting in January 2026.

At Andersen Saudi Arabia, we promise to provide you with the best tax, zakat, and customs services.