Tax Cut Fails to Lower Coca-Cola Prices in Israel, Study Shows

A recent study by the Israeli Tax Authority reveals that despite the removal of the excise tax on sugary drinks in March 2023, prices for popular beverages like Coca-Cola have not returned to pre-tax levels. The excise tax, which was introduced in January 2022 and amounted to about 1.02 shekels per liter for Coca-Cola, initially caused prices to rise significantly beyond the tax amount. For example, Coca-Cola's average price jumped from 3.85 shekels per liter before the tax to 5.09 shekels during the tax period, a 32% increase.

After the tax was lifted, prices dropped by only 81 agorot per liter, settling at 4.28 shekels, and then rose again to 4.75 shekels by 2025, representing a 23% increase compared to 2021. Similar patterns were observed with Coca-Cola Zero, Fuze Tea, and Prigat products, all showing price increases ranging from 19% to 24% compared to pre-tax prices. The Tax Authority noted that manufacturers and retailers likely increased their profits during the tax period and did not fully pass on the tax reduction to consumers.

The tax initially led to a 12% decrease in sugary drink consumption, but after its removal, consumption only rose by about 5%, failing to return to previous levels. The study highlights that while the tax generated approximately 900 million shekels in 2022, its removal in 2025 could have cost the state an estimated 1.05 billion shekels in revenue. The Central Bottling Company, which markets these beverages, has not yet responded to the findings.

This investigation underscores the complexity of pricing dynamics in the beverage market and suggests that tax policy alone may not be sufficient to control prices or consumption effectively.