Recent Updates to UAE Excise Tax Laws: What’s New for 2025?
February 26, 2025
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Running a restaurant or café in the UAE has always required careful financial planning and cost control. However, with the excise tax on carbonated drinks, energy drinks, sweetened beverages, tobacco, and vaping products, business owners have had to rethink their pricing, menu offerings, and overall strategy.
Since the excise tax increases the cost of these products by 50% to 100%, many restaurants and cafés have seen shifting customer preferences, lower sales in taxed items, and an increased demand for healthier alternatives. Businesses that fail to adapt to these changes risk losing customers, facing compliance penalties, and experiencing shrinking profit margins.
Understanding how excise tax affects restaurants and cafés is essential for business owners who want to maintain profitability while staying fully compliant with UAE tax laws. By implementing smart pricing strategies, adjusting inventory, and offering new alternatives, businesses can navigate these challenges and continue thriving in a competitive market.
The UAE excise tax has made it more expensive for restaurants and cafés to offer certain beverages and tobacco products. Many establishments that once relied on soft drinks, energy drinks, and shisha as profitable menu items now find that these products have become less attractive to price-sensitive customers.
The most affected categories include:
For business owners, this means that they must rethink their menu offerings, adjust pricing, and introduce new alternatives to keep customers engaged and maintain revenue streams.
Many customers have changed their buying habits due to the excise tax. While some continue purchasing taxed items despite the higher prices, others have cut back, switched to cheaper alternatives, or avoided excise goods altogether.
In many restaurants, orders for soft drinks and energy drinks have dropped, as customers choose water, fresh juices, or non-carbonated beverages instead. Similarly, some shisha cafés have seen a decline in customers, as the increased cost of tobacco has made regular visits less affordable for many consumers.
Restaurants that fail to adjust to these shifting preferences may experience a drop in sales and customer retention. Business owners must find creative ways to keep customers engaged while offering menu options that remain profitable.
With excise tax increasing the cost of carbonated drinks, energy drinks, sweetened beverages, and tobacco products, restaurants and cafés must carefully adjust their pricing strategies to protect profit margins while keeping customers engaged. Simply passing the tax burden onto customers with straightforward price increases can result in reduced sales, dissatisfied customers, and lower foot traffic. Instead, business owners must take a strategic approach to pricing that balances affordability, perceived value, and profitability.
A one-size-fits-all approach to pricing may push away cost-sensitive customers, especially when it comes to excise-taxed beverages. Instead, restaurants and cafés can introduce tiered pricing to provide customers with a range of options at different price points.
For example, instead of offering only regular carbonated drinks at a higher price, introduce a three-tiered approach:
By offering choices, customers feel more in control of their spending and are less likely to resist the impact of price increases. It also allows businesses to recover profit margins on higher-end options while still accommodating price-sensitive customers.
Instead of raising the price of excise goods individually, restaurants and cafés can bundle them with other menu items to create value-driven meal deals or combo offers.
For example, instead of pricing a soft drink separately at an inflated rate, include it in a lunch combo meal with a slight discount. This strategy makes the price increase less noticeable, as customers perceive they are getting better overall value rather than just paying more for a drink.
Cafés can also introduce pairing promotions, such as offering a discount on an energy drink when purchased with a sandwich. These bundled deals encourage customers to purchase more items per visit, compensating for any lost sales due to excise tax.
Rather than increasing the price of excise-taxed beverages without modification, consider adjusting portion sizes to maintain perceived affordability.
For instance, instead of serving a large-sized carbonated drink at a significantly higher price, offer a medium-sized option at a slightly lower price point. Customers are more likely to accept a smaller portion with a stable price than an abrupt price increase on their usual order.
Cafés selling energy drinks or sweetened beverages can apply a similar tactic by offering multiple size options, allowing customers to choose between affordability and indulgence.
Consumer willingness to pay fluctuates depending on the time of day and occasion. Restaurants and cafés can use this insight to adjust pricing dynamically, ensuring they maintain strong margins during peak times while offering incentives during slower hours.
For example, a café might charge full price for energy drinks in the morning, when demand is highest, but introduce happy hour discounts on taxed beverages in the late afternoon, when foot traffic is lower.
By implementing time-based pricing adjustments, businesses can maximize revenue while maintaining customer satisfaction across different segments.
Excise tax increases can make regular purchases of taxed items less attractive to loyal customers. To keep them engaged, restaurants and cafés can introduce loyalty rewards programs that provide benefits for repeat purchases.
For example, a café could offer a free soft drink after every five purchased, making customers feel they are getting extra value despite price increases. Similarly, shisha cafés could implement a membership program where frequent customers receive discounts on premium tobacco flavors.
By rewarding customer loyalty, businesses can soften the impact of excise tax while ensuring long-term customer retention.
Many consumers are already shifting toward health-conscious alternatives, so restaurants and cafés can actively promote lower-taxed or tax-free beverage options. Instead of simply increasing the price of excise goods, encourage customers to explore healthier, more affordable alternatives.
For instance, instead of a regular energy drink that has doubled in price, highlight a new sugar-free version at a lower tax rate. Similarly, replace carbonated sodas with freshly prepared iced teas, infused waters, or natural fruit juices, which can be priced more competitively.
By focusing on healthier options, businesses can align with changing customer preferences while reducing their reliance on excise-taxed products.
How a menu is presented influences customer decisions and spending behavior. Restaurants and cafés can strategically redesign their menus to highlight high-margin items and subtly shift focus away from excise-taxed products.
For instance, rather than listing excise-taxed beverages in the most visible section of the menu, place them lower on the list while featuring tax-free or lower-tax options more prominently. Additionally, using persuasive descriptions and highlighting healthier alternatives can encourage customers to explore new options rather than fixating on taxed items.
By making small changes to menu structure, design, and pricing presentation, businesses can guide customers toward purchases that help maintain profitability while managing tax impact.
The higher cost of excise goods doesn’t just affect customers—it also impacts restaurant and café purchasing costs. To reduce the financial burden, business owners should negotiate better pricing with suppliers or explore alternative sourcing strategies.
For example, switching to local beverage suppliers rather than relying on imported brands can help reduce costs. Additionally, negotiating bulk purchase discounts or exploring direct partnerships with manufacturers can provide businesses with better pricing that helps offset excise tax expenses.
Taking a proactive approach to supplier negotiations can lead to cost savings that can be passed on to customers without significantly raising menu prices.
With many customers actively looking for healthier options, restaurants and cafés can take advantage of the growing demand for low-sugar and natural beverages. Offering freshly squeezed juices, herbal teas, and flavored waters can provide an attractive alternative to taxed drinks while aligning with changing consumer preferences.
Many restaurants have also started offering homemade beverages, such as iced teas, infused waters, and sugar-free mocktails, which are not subject to excise tax. These options allow businesses to avoid tax-related price increases while meeting customer demand for healthier choices.
By expanding the range of tax-free drinks on the menu, business owners can reduce the financial impact of excise tax while positioning their restaurant or café as a healthier choice for consumers.
For cafés and lounges that sell shisha or tobacco products, the 100% excise tax on tobacco has had a major impact. Since the cost of shisha has doubled, many customers are cutting back on visits or reducing the frequency of their purchases.
Some businesses have responded by offering smaller shisha sizes at a lower price, making it more affordable for customers to continue enjoying the experience. Others have introduced premium or flavored tobacco options, justifying the higher prices by offering a higher-quality smoking experience.
To maintain profitability, shisha cafés should consider:
By adapting their pricing and product offerings, shisha cafés can retain loyal customers while managing the impact of excise tax on their business.
In addition to pricing and menu adjustments, restaurants and cafés must also ensure full compliance with excise tax regulations. The UAE government closely monitors excise tax payments, and businesses that fail to comply can face penalties, fines, or even business restrictions.
To stay compliant, business owners must:
Failure to meet these requirements can result in severe penalties, including backdated tax payments, fines, and business disruptions. To prevent compliance issues, many restaurant and café owners choose to work with tax consultants or accounting firms that specialize in excise tax regulations.
Excise tax is likely to remain a long-term policy in the UAE, and additional categories may be added in the future. As the government continues to focus on public health and reducing unhealthy consumption, businesses must be prepared for potential expansions of excise tax to other food and beverage products.
Restaurants and cafés that proactively adjust their menus, pricing, and marketing strategies will be better positioned to succeed in a tax-regulated environment. Those that fail to adapt to changing consumer behavior and tax regulations may struggle to maintain profitability and long-term sustainability.
The UAE excise tax has transformed the restaurant and café industry, forcing business owners to rethink pricing strategies, menu offerings, and overall operations. While the tax has increased costs, smart business decisions can help restaurants and cafés remain profitable.
By offering creative pricing models, expanding healthier beverage options, ensuring full compliance, and adapting marketing strategies, businesses can continue attracting customers while managing the financial impact of excise tax.
For expert guidance on excise tax compliance, pricing strategies, and financial planning, Protax Advisors provides professional tax consulting services tailored for restaurants and cafés.
Book a free consultation today and let Protax Advisors help you stay compliant, optimize your pricing, and successfully navigate excise tax challenges in the UAE.
Schedule a consultation call and learn how our expertise in accounting and tax services can benefit your business.