PRICE ELASTICITY OF DEMAND AND THE IMPACT OF TAXING SUGAR-SWEETENED BEVERAGES IN MALAYSIA

Abstract

The Malaysian government implemented an excise tax of MYR 0.40 per L on sugar-sweetened beverages in July 2019. Excise tax is imposed on sweetened drinks containing more than 5 g of sugar per 100 ml, flavoured Ultra High Temperature milk-based drinks, and fruit juices with more than 7 g and 12 g of sugar per 100 ml, respectively. We analysed the impact of excise tax on the consumption of SSBs by developing a demand model for SSBs to estimate the elasticity of demand using a two-way fixed-effect model. The tax increased the price of 1 L SSBs by 8.33%, and we estimated it to decrease the consumption of SSBs by 9.25%. The estimated own-price elasticity of demand for SSBs was −1.11 (95% CI: −1.97 to −0.25). Price of SSB is a determinant for SSB demand, but income or the price of milk are not. The estimated excise revenue calculated was MYR 357.61 million. However, industry responses via product reformulation and pass-through rates could reduce revenue and enhance or reduce health impacts.