Israel Cancels Sweetened Beverage Tax but Prices Remain Elevated for Consumers

Israel's Tax Authority released a study on Wednesday analyzing the impact of the sweetened beverage purchase tax imposed on January 1, 2022, and repealed on March 30, 2023. The tax aimed to reduce health issues linked to sugary and artificially sweetened drinks by charging 1 shekel per liter on sweetened beverages and 6 shekels per liter or kilogram on concentrates and powders. Additional rates applied to drinks with lower sugar content and fruit juices exceeding 5 grams of sugar per 100 ml.

The study found that the tax led to a sharp increase in sweetened beverage prices and a significant 12% drop in consumption. After the tax was lifted, prices fell and consumption rose by about 5%, though neither prices nor consumption returned to pre-tax levels. The research also revealed that manufacturers passed the entire tax cost onto consumers and used the tax introduction to raise prices beyond the tax amount. Following repeal, prices did not fully decrease by the tax amount, meaning consumers continued to pay higher prices despite the tax removal.

The tax generated approximately 900 million shekels in 2022, with projected revenues of 1.05 billion shekels if it had remained in effect in 2025. The tax repeal was part of coalition agreements forming Israel's 37th government, initially set to last until the end of 2023 but extended through 2024, with a permanent repeal starting January 2025. The study also noted a stronger consumption reduction effect within the ultra-Orthodox sector compared to the general population.

Researchers from the Tax Authority's Planning and Economics Division, including Rivka Ephremov, Yulia Ungar, and Tal Cohen-Teper, conducted the study. Their findings highlight the complex pricing dynamics and partial persistence of higher prices even after the tax's cancellation, indicating manufacturers' pricing strategies influenced consumer costs beyond the tax itself.