Sweet Drink Tax Repealed but Prices Remain Elevated in Israel

In 2021, a purchase tax was introduced on sugary drinks in Israel, causing the price of a liter of Coca-Cola in a six-pack to rise from 3.85 shekels to 5.09 shekels. Although the tax was repealed in March 2023 following strong pressure from ultra-Orthodox parties, prices did not return to pre-tax levels. By 2025, the price stood at 4.75 shekels, 23% higher than before the tax was imposed, according to a report by the Israeli Tax Authority.

The report explains that beverage producers passed the full tax cost onto consumers and even used the tax as an opportunity to increase prices. After the tax was removed, producers did not fully reduce prices, so the state's lost tax revenue was not fully reflected in consumer prices. For example, the average price of a liter of regular Coca-Cola jumped from 4.77 shekels in late 2021 to 6.15 shekels in early 2022 when the tax took effect, and after repeal in early 2023, it only dropped to 5.42 shekels. Cheaper brands saw even more dramatic increases, such as RC Cola rising 74% due to the tax.

Inflation partly explains the price trends, but the report shows that cola prices rose significantly more than general consumer prices. Even after adjusting for inflation, prices remained higher than before the tax and did not fully revert after repeal. On the health front, the tax succeeded in reducing sugary drink consumption by nearly 12% in 2022 compared to 2021. After repeal, consumption rose about 5% but remained 6% below pre-tax levels. The ultra-Orthodox sector, which pushed hardest for repeal, showed the largest consumption drop during the tax and a smaller rebound after repeal.

The tax was designed to reduce health harms from sugary and artificially sweetened drinks, with a higher rate on sugary drinks and a lower rate on diet versions. This led to a shift in consumption from regular to diet sodas, with regular cola consumption dropping 11.7% from 2021 to 2025 and diet cola rising 3.5%. The tax also generated significant revenue, about 900 million shekels in 2022, and would have yielded over 1 billion shekels in 2025 if still in place. The repeal, made permanent in January 2025, cost the state substantial revenue, did not fully benefit consumers with lower prices, and only partially maintained the health gains achieved under the tax, according to the report.