Introduction
An $80 %$ increase in the excise tax rate for sugar-sweetened beverages (SSBs), from 50 sen per litre to 90 sen per litre, has been implemented since January 1 following the Budget 2025 announcement. This drastic increase in the SSB tax rate, the second adjustment since the 2024 hike, is one of the latest approaches to raise government revenue and support the ‘War Against Sugar’ movement.
While this measure signifies the government’s determination to address the growing problem of diabetes and other noncommunicable diseases (NCDs), focusing on sticks or deterrents, such as the taxation of unhealthy foods, will be neither an effective nor sustainable approach. To significantly foster and sustain healthy food behaviours at the population level, we also need carrots—incentives that motivate consumers to make healthier choices—and nudges—behavioural tools that steer people towards healthier diets and lifestyles.
In this article, we discuss why focusing on unhealthy food taxes, such as SSB taxes, will not be effective in promoting healthy food behaviours and the potential of incentives and nudges as policy tools to drive healthy behaviours.
Unhealthy Food Taxes in Practice
Excise duties refer to consumption taxes imposed on goods or services that are typically passed on to consumers in the form of higher prices. They are commonly used as a public health tool to deter unhealthy behaviours, such as cigarette smoking and the consumption of unhealthy food and drink, normally high fat, salt or sugar (HFSS) foods and alcohol.
Worldwide, many countries have implemented excise duties on several categories of food and drink deemed unhealthy. The SSB tax is the most popular type of excise tax on food and drink, with at least 108 countries implementing such measures to date. While less widely implemented, excise taxes on other categories of food that contribute to unhealthy diets, such as those high in saturated fat, trans fat, free sugar and salt, have also been introduced in several countries. Foods that fall under these categories include processed meat, margarine, confectionery, salty snacks and condiments.
For example, in 2011, Denmark became the first country to introduce a fat tax—an excise tax on food containing high levels of saturated fat. This measure was implemented as a part of a bigger economic reform package primarily aimed at increasing the government’s fiscal revenue. Under this tax, food products with saturated fat content exceeding $2 . 3 \mathrm { g }$ per $100 \mathrm { g } ,$ which included meat, dairy products, animal fat, edible oils, margarine and spreads, were taxed at a rate of DKK 16 (approximately RM10 based on current exchange rate) per kg of saturated fat, on top of a $25 %$ value-added tax (VAT). However, the tax was repealed shortly after 14 months due to its perceived impact on increasing food prices and strong criticism from the food industry, retailers and health experts concerning its necessity.
2011 also saw the introduction of the Public Health Product Tax (PHPT), also known as the “junk food tax”, in Hungary to promote healthier diets. The tax applies to products high in salt, sugar or caffeine, including SSBs, syrups, confectionery, salty snacks, condiments and energy drinks as well as alcoholic beverages. The revenue generated is earmarked for public health use, including for raising the wages of healthcare workers.
In Malaysia, the focus of unhealthy food taxes remains on SSBs, though there has been a rising call for an additional “fat tax” to include foods high in fat and calories in light of the increasing rates of obesity and NCDs. First introduced in 2019, the SSB tax applies to beverages with sugar content exceeding certain levels and later expanded to pre-mixed two-in-one and three-in-one powdered drinks in 2024. Based on the Budget 2025 announcement, the revenue generated from the SSB tax will be used to support diabetes treatment, enhance dialysis centres and increase access to dialysis.
The Limitations of Unhealthy Food Taxes
The use of excise taxes as an instrument to influence food choices is based on the ‘law of demand’ in economics; it says that price is inversely correlated with demand—higher prices should, therefore, lead to lower consumption. Such taxes create price differences between unhealthy products and healthier, untaxed alternatives, making customers less likely to opt for the higher-priced but less healthy products.
While unhealthy food taxes can deliver significant impacts, such as reduced intake of unhealthy foods or nutrients of concern, these taxes can be short-lived, especially when they are not coupled with strong public health messaging and initiatives that increase the availability of healthier options. This is because, as household income rises over time, consumers may become less sensitive to higher prices of taxed products and return to previous consumption levels.
Take Hungary as an example: the initial impact of PHPT, cited by the World Health Organisation (WHO) as a best practice, diminished over time, even when the prices of taxed products have been rising in line with or above inflation. The consumption of certain unhealthy foods, such as soft drinks, chocolates and salty snacks, was found to increase across all income deciles seven years after the introduction of the tax. In addition, the awareness of PHPT among Hungarians, which correlated with the consumption of certain PHPT-affected products, also declined over the same period.
The effectiveness of unhealthy food taxes also depends on their pass-through rate, i.e., the amount of tax passed on from the manufacturers to the consumers. Given the price elasticity of unhealthy foods, these taxes are most effective when they are passed on to the consumers at a high or full rate, leading to retail price increases. When such taxes get fully or partially absorbed by the producers, it results in minimal impact on the targeted unhealthy food prices and, possibly, little influence on consumption patterns. Avoiding the unintended consequences of the substitution effect is also equally important, where consumers shift to untaxed but similarly unhealthy products from different categories, such as switching from SSBs to ice cream or confectionery.
According to the Impact and Effectiveness Assessment of the Sugar-Sweetened Beverage Tax conducted in 2022, an unpublished study by the Ministry of Health (MOH) of Malaysia, at least 242 SSBs have been reformulated to lower sugar levels. A separate annual report published by MOH shared that 344 beverages had been reformulated two years after the tax was implemented. The former study also showed that the SSB tax led to a price increase of $2 . 2 4 % , much lower than the anticipated impact of $8 . 8 3 % . This suggests that the SSB tax had minimal effect on prices, possibly due to the low pass-through rate, which may affect the tax's effectiveness in reducing SSB consumption.
To date, no local study has monitored the actual change in SSB consumption levels or the presence of substitution effect following the SSB tax rollout. The National Health and Morbidity Survey (NHMS), Malaysia’s nationwide population-based health survey, showed that the consumption of carbonated soft drinks among adolescents aged 5-17 has dropped from 36.9% in 2017 to 32.4% in 2022, 3 years after the SSB tax was introduced. However, the extent to which the decline in soft drink consumption among adolescents was associated with the SSB tax is unclear.
Considering the minimal impact on prices yet effectiveness in driving product reformulation, the SSB tax may be more useful in reducing sugar intake than significantly discouraging SSB consumption. While product reformulation is a practical way to increase healthier options, its benefits can be easily offset by more frequent consumption, which may eventually result in similar sugar intake.
Food purchasing patterns are not solely determined by economic factors. They are also significantly influenced by the food environment, level of health knowledge, cultural backgrounds and other social determinants. For that reason, we should be looking at a multipronged approach to address the growing public health challenges. It is also important to note that obesity, diabetes and many other NCDs are not only related to food choices but also to lifestyle, including physical activity, which will not be affected by unhealthy food taxes. Thus, taxes alone are unlikely to substantially bring down diet-related health problems unless implemented as a part of a bigger public health policy package.
In many cases, complementing unhealthy food taxes with salient and strong public health messages that raise awareness about the taxes and their implications shows greater effects in changing consumers’ food purchasing behaviours. Furthermore, when unhealthy food taxes are introduced alongside incentives that promote healthier options, such as nudges and healthy food subsidies, consumers not only reduce their purchase of taxed products but also increase their intake of healthier alternatives.
It is also equally important to ensure that other fiscal measures that influence dietary behaviours are designed to complement or reinforce, rather than contradict, health promotion efforts. The existing price ceiling on sugar, which keeps Malaysia’s sugar price the lowest in ASEAN, may counteract the intended impacts of the SSB taxes. Expanding sales and services tax (SST) to nutritious foods labelled as premium, such as salmon and avocado, may make healthier choices even more expensive. We need to prioritise a well-rounded approach that discourages the purchase of unhealthy food and, at the same time, actively promotes and guides consumers toward healthier choices, whether common or premium options.
The Potential of Health-Promoting Nudges and Incentives
Many countries are increasingly exploring other approaches, particularly nudges and incentives, to increase health awareness and promote positive behavioural changes. While taxes can help deter unhealthy food consumption, their effectiveness in steering consumers towards healthier options is limited. This is where nudges and incentives come into play, serving as a policy tool to prompt healthier decisions or choices.
Nudges work like GPS devices; they steer individuals in a certain direction without restricting their freedom of choice or substantially altering their economic incentives. Such approaches are behaviourally informed and designed to change the way choices are presented (i.e., the choice architecture) to an individual, prompting behavioural changes in a predictable manner. Simply put, nudges help make certain choices the easy or default choices for individuals.
Nudges can be applied to various policy domains, including personal finance, education, environment, law and privacy, but are most commonly applied for public health purposes. Health-oriented nudges are used to steer individuals towards healthier eating and lifestyles, such as reducing unhealthy food intake, increasing physical activity and smoking cessation.
Given the low implementation costs, nudges can be more cost-effective than traditional policy tools like monetary incentives. Examples of nudges include warnings, reminders, information disclosure, simplification of information and choices, defaults, product placement in supermarkets and restaurants, and automatic enrolment.
Singapore’s Health Promotion Approaches
In Singapore, all national health promotion and disease prevention initiatives fall under the purview of the Health Promotion Board (HPB), a statutory board under the Ministry of Health. Its initiatives cover multiple domains, ranging from diets, physical activity and mental health to health screening, smoking control and communicable disease education. These programmes are implemented in communities, schools and workplaces.
Over the years, HPB has implemented various programmes that leverage behavioural insights, including nudges and incentives, to promote healthy eating and active lifestyles. In some cases, nudges and incentives are used in combination. The notable nudge- and incentive-based initiatives introduced by HPB are listed in Table 3 below.
Concluding Remarks
The experiences of other countries may not be directly applicable to the Malaysian context, but they offer valuable insights that can help inform and refine our approach to tackle the current public health challenges. For example, Denmark’s experience shows the need for strong political will and a clear intention to implement unhealthy food taxes as a public health initiative rather than a revenue-generating measure. The Hungarian case highlights the importance of complementary policies and effective health communication to sustain the behavioural changes prompted by unhealthy food taxes. Singapore’s health promotion strategies suggest the potential of nudges and incentives suited to local sociocultural contexts as policy tools to tackle behavioural issues associated with unhealthy diets and sedentary lifestyles.
While impactful as a public health tool, unhealthy food taxes alone cannot substantially address the growing health crisis and unhealthy eating behaviours. Rather, they must be implemented as part of a comprehensive, multipronged approach consisting of complementary policies that steer individuals towards healthier choices and serious efforts to address barriers to healthy eating within the food environment.
