Despite its cancellation: the tax on sweetened drinks still affects consumption in Israel

The Tax Authority published a study showing that the tax on sweetened drinks, imposed in January 2022 and canceled in March 2023, still affects prices and consumption in Israel. The imposition led to a sharp price increase and a drop of about 12% in consumption, while the cancellation brought a moderate price decrease and a rise of about 5% in consumption, but prices and consumption did not return to their previous levels. Manufacturers passed the tax on to consumers and even used it to raise prices.

The Tax Authority published today (Wednesday) a study showing that the tax on sweetened drinks, imposed in January 2022 and canceled on March 30, 2023, still affects consumption and prices in Israel. The data shows that the imposition of the tax led to a sharp increase in prices and a significant decrease in consumption, while its cancellation brought a decrease in prices and an increase in consumption, but prices and consumption did not return to their previous levels. It was also found that the price increase following the tax was higher than the tax amount itself, even when excluding inflation, and the decrease after the cancellation was lower than the tax burden that was removed. The implication: beverage manufacturers passed the full tax on to consumers and even used it to raise prices, and after the cancellation they did not reduce prices accordingly. The study shows a decrease of about 12% in consumption with the imposition of the tax and an increase of about 5% with its cancellation, with a greater impact in the ultra-Orthodox sector. The tax was one shekel per liter for sweetened drinks, six shekels per liter for concentrate, and 0.7 shekels per liter for drinks with less than 5 grams of sugar per 100 ml. State revenues from the tax in 2022 were about 900 million shekels, and were expected to reach about 1.05 billion shekels in 2025. The study was signed by Rivka Efremov, Yulia Unger, and Tal Cohen-Tafer from the Planning and Economics Division of the Tax Authority.