Sweet Drink Consumption Remains 6% Lower Three Years After Sugar Tax Repeal in Israel

Three years after Israel repealed the sugar tax on sweetened beverages, consumption remains about 6% below pre-tax levels despite a moderate increase following the tax's cancellation. The Israeli Tax Authority reviewed the impact of the tax, introduced in January 2022 and repealed in March 2023, on prices and consumer behavior. After the tax was imposed, sweetened drink consumption dropped by approximately 12% compared to 2021, but rose by about 5% after the tax was lifted. However, consumption has not returned to pre-tax levels, indicating a partial but not full rebound.

The decline in consumption was more pronounced in the Haredi sector, where it fell by 20.2% after the tax and rose by 12.2% after repeal, compared to 11.8% and 5.1% respectively in the general population. The tax also shifted consumer preferences toward diet sweetened beverages, which were taxed at a lower rate, with increased consumption of diet cola and decreased consumption of higher-taxed sugary drinks.

Price analysis showed that the average price per liter of most sweetened drinks increased by more than the tax amount after its introduction, even after adjusting for inflation. When the tax was repealed, prices fell less than the tax amount, suggesting manufacturers passed the full tax cost to consumers and partially retained higher prices after repeal. For example, the price of a 1.5-liter bottle of Coca-Cola rose by about 32% (1.24 shekels per liter) after the tax and dropped only 16% (0.80 shekels) after repeal.

The sugar tax was initially implemented by the Bennett-Lapid government to reduce health risks associated with high sugar and artificial sweetener consumption. It imposed a 1 shekel per liter excise on sweetened drinks and higher rates on concentrates and powders. The current government quickly repealed the tax, first temporarily until the end of 2023, then extended to the end of 2024, with a permanent repeal starting January 2025. The tax generated an additional 900 million shekels in state revenue in 2022, with projected revenue of about 1.05 billion shekels if it had continued into 2025.