The Role of Corrective Taxes in Tackling Obesity

Policy Context

The global rise in obesity has become a significant public health concern, especially in low- and middle-income countries where healthcare resources are often limited. South Africa exemplifies this trend, with high rates of obesity contributing to increasing incidences of non-communicable diseases such as diabetes and cardiovascular issues. Excessive consumption of sugar-sweetened beverages (SSBs) is a leading factor in this crisis, as these products are calorie-dense and nutrient-poor. Recognizing this, South Africa implemented the Health Promotion Levy (HPL) in 2018, becoming the first African nation to introduce a sugar tax. 

The levy, targeting beverages with sugar content exceeding 4 grams per 100 milliliters, aims to reduce sugar consumption and encourage healthier dietary habits. In 2023, South Africa’s government publicly acknowledged that “limited published evidence [exists] about the effectiveness of [measures] to reduce obesity” (NDoH 2023). Our study aims to fill this evidence gap by investigating the effects of South Africa’s sugar tax on important economic outcomes.

Study Design

This study investigates the HPL’s impact on sugar consumption in South Africa, utilizing administrative data from excise returns filed by SSB manufacturers and importers. In this data researchers directly observe the filings of manufacturers through which they report the quantity of sugar cleared by them each month and sugar tax paid by them on the quantity cleared. Moreover, the research team separately observe the quantity of sugar cleared in taxable and non-taxable drinks. Given that the sugar tax applies only to drinks containing more than 4 grams of sugar per 100 ml, the design creates an incentive for manufacturers to reformulate their taxable products, reducing the sugar content below the threshold to make the product non-taxable. Because Cejka observes the clearance of sugar in taxable and non-taxable products separately, he can estimate any shifting response through the reformulation channel. 

This project uses an event study approach to examine changes in sugar consumption patterns before and after the levy’s implementation. The empirical framework employed accounts for seasonal consumption patterns and other confounding factors to ensure robust estimates of the HPL’s impact. By analyzing trends in sugar quantities cleared for taxation, Cejka assesses the direct effects of the levy and explore unintended responses, such as increased consumption of non-taxable beverages. This not only quantifies the levy’s effectiveness but also identifies potential areas for improvement of the design of the tax, such as expanding the scope of taxed products or adjusting tax rates to account for inflation. 

Results and Policy Lessons

Analysis of excise data shows that South Africa’s Health Promotion Levy (HPL) led to substantial changes in sugar-sweetened beverage (SSB) consumption. After accounting for seasonal peaks in demand, the study finds no long-term upward or downward trend in overall consumption prior to the levy, but a sharp decline following its introduction. Between 2018 and 2022, sugar cleared through taxed SSBs fell by nearly 45%, from about 20,000 to 11,000 metric tons per month. Causal estimates indicate that the share of sugar consumed from taxed drinks fell by around 20 percentage points—a reduction of nearly 40% relative to the baseline—translating into an estimated 33% drop in the volume of sugar consumed from these beverages.

At the same time, the study documents a clear substitution effect: while sugar from taxed beverages declined sharply, total sugar consumption from all SSBs (taxed and untaxed) fell by only 15%. This shift reflects both consumer substitution toward untaxed products and producer reformulation to reduce sugar content and avoid taxation. Compared to international evidence, these effects are larger in magnitude, suggesting that responses to sugar taxes are highly context-specific. Overall, the findings provide strong evidence that the HPL has been effective in reducing sugar consumption from taxed drinks, while underscoring the importance of considering substitution when assessing broader health impacts.