Indonesia is taking a bold step in combating the rising health concerns associated with excessive sugar consumption. Starting in July 2025, the country will impose an excise tax on sugary packaged beverages. This decision comes as part of the government’s efforts to address health issues such as diabetes, which have been steadily increasing across the nation.
The new tax is part of Indonesia’s strategy to curb unhealthy consumption habits and to generate revenue for health initiatives. Here’s what we know so far:
The Purpose Behind the Tax
The Indonesian government is targeting sugary drinks due to their direct link to a rise in chronic health conditions. Specifically, diabetes rates have increased significantly in the country. A 2023 survey by Indonesia’s Ministry of Health revealed that 11.7% of the population—over 270 million people—suffer from diabetes. Experts have highlighted that a sedentary lifestyle combined with an unhealthy diet, including an increased preference for sugary drinks, are major contributing factors.
Sugary drinks have become a significant part of the Indonesian diet. According to the Center for Indonesia’s Strategic Development Initiatives (CISDI), the country’s sugary drink consumption has increased 15-fold over the last two decades. From 51 million liters in 1996 to 780 million liters in 2014, Indonesia is now one of the largest consumers of sugary beverages in Southeast Asia, ranking third in the region.
The excise tax aims to reduce the intake of these drinks, which are often high in sugar and have limited nutritional value. By taxing sugary drinks, the government hopes to steer people toward healthier choices and reduce the burden on the country’s healthcare system.
Key Details of the Tax
The tax on sugary drinks will apply to all factory-produced beverages, including those sold in stores, cafes, and bubble tea shops. However, not all drinks will be subject to this excise tax. Beverages with sugar content below a specified level will be exempt from the tax. This is likely intended to protect products that are less harmful and encourage beverage manufacturers to reformulate their drinks to contain lower levels of sugar.
The government is aiming to collect 3.08 trillion IDR (US$190.3 million) in excise tax revenue from sugary drinks in 2025. This is a reduction from the 4.3 trillion IDR target set for 2024, which was not met. Despite this decrease, the government sees the tax as a necessary step in improving public health while also generating revenue for the country’s health-related expenditures.
Challenges and Delays
The sugary drink tax has faced significant opposition in the past, particularly from businesses concerned about the impact on inflation and potential harm to the industry. The Ministry of Finance first proposed the excise tax back in 2009, but it has been delayed multiple times due to resistance from various sectors.
Despite this opposition, the Indonesian government is determined to move forward with the tax, albeit with careful consideration of the economic context. Nirwala Dwi Heryanto, spokesperson for the Directorate General of Customs and Excise, emphasized that regulations will be established to ensure the tax is fair and appropriate.
A Progressive Taxation Model?
Some experts are suggesting that the government adopt a progressive taxation model, where the rate of tax would be based on the sugar content of the drink. Under this system, beverages with higher sugar levels would face higher taxes, thus potentially generating more revenue. This approach could also encourage manufacturers to reformulate their products to reduce sugar content and avoid higher taxes.
Nailul Huda, the Digital Economy Director at the Center for Economic and Legal Studies (Celios), has supported this idea, noting that it could help balance the goals of increasing tax revenue while promoting healthier beverage options in the market.
What’s Next for Indonesia’s Sugary Drink Market?
As the tax implementation date nears, the sugary drink market in Indonesia will likely experience significant changes. Consumers may begin shifting towards lower-sugar or sugar-free alternatives, while manufacturers may begin adjusting their product lines to comply with the new regulations. Additionally, businesses might explore new strategies to mitigate the impact of the excise tax, such as reformulating products, offering smaller portion sizes, or emphasizing other ingredients that appeal to health-conscious consumers.
The success of the sugary drink tax will depend on how well it is implemented and whether it succeeds in changing consumer behavior. If successful, Indonesia’s excise tax could become a model for other countries in the region looking to tackle the public health crisis associated with excessive sugar consumption.
As the tax takes effect in July 2025, all eyes will be on Indonesia to see how the market adjusts and whether the initiative leads to meaningful improvements in public health.
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