Muddled thinking on alcohol tax rates

Free trade is a good concept, but when it leads to social ills, policy makers have to tread carefully. Historically, the Thai government has employed a dull logic that shows little regard to health. Liquor with a high alcohol content - like local spirits that are up to 40 per cent proof - are faced with little tax, a lot less than your average beer.

The idea is that consumers can get more bang for their buck. In other words, getting drunker for less money. The state of their health, however, is not really taken into consideration. This may be popular among average drinkers, but governments are not elected to spoil the public.

But times change and new issues have risen. Besides the anti-alcohol sentiment among the religious quarter in Thai society, there are other concerns such as public health, underage drinking and drink-related crimes.

So this New Year the government is looking to raise an excise tax, as foreign beers and liquors will be subject to a zero import duty under the Asean Free Trade Agreement (Afta). Under this arrangement, Thailand and other Asean countries will be opening up their domestic markets to boost trade within the 10-country grouping.

At present, the country is the largest market for alcoholic beverages in the region, followed by the Philippines and Vietnam.

Already, say informed sources, Chinese beverage firms with production facilities inside Southeast Asia are looking to swamp the Thai market with cheap beer and liquor. In addition, some European firms are already using production facilities within Asean to supply low-cost products to the Thai market.

Sources say the excise ceiling on beer is expected to rise from Bt100 to Bt460 per litre based on alcohol content, while that of distilled white spirits and whisky will rise from Bt120 to Bt400.

A Finance Ministry official stated that such an increase in excise tax was needed in order to prevent cheaper, foreign-made alcoholic drinks being dumped in the Thai market once Afta comes into effect. He also stated that the increased tax was necessary to manage consumption of products that are damaging to consumers' health.

In practice, the hike will generate income for the government while at the same time reducing the number of people able to afford alcohol. It may be good in the long run when we take into consideration spending on public health related to alcohol consumption.

Studies have shown that increases in alcohol prices indeed lead to a decrease in alcohol consumption. The government therefore gets the best of both worlds. As the number of alcohol consumers will surely decline, so will the cost of the healthcare system. On the other hand, as is the case with constantly rising cigarette taxes, the decrease in profits will be more than made up for by the increased excise tax

Who gets the short end of the deal, then? Consumers do, as liquor companies will likely shift the tax burden on to them. Life will not be so good for these companies either. Their margins of profit will remain the same, but their overall profits will decrease from the reduced number of consumers.

But a quick glance at Bangkok's nightlife, not to mention the growing social ills relating to young people and alcohol consumption throughout the country, shows that perhaps the authorities should do a better job in terms of preventative measures. For instance, stricter regulations and more rigorous checks are needed to prevent underage people from buying alcohol or entering establishments that serve alcohol. The authorities also need to raise public awareness about the dangers of alcohol.

Violators should be subject to lawful punishment, and this does not mean tea money for police officers. The idea is to drink responsibly and to do it legally.