Beer producers expected to suffer from excise tax hike: Fitch

Economy September 25, 2017 18:23

By The Nation

Thailand’s new Excise Tax Act will have a larger impact on local beer producers than on producers of domestic spirits



 

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That’s because the beer market is more competitive and demand is sensitive to prices, said Fitch Ratings.

The producers of non-alcoholic beverages will also be hit by the imposition of a first-time tax on sugar content in drinks.

Fitch expects some pressure on beer producers as their ability to pass on the increasing tax cost to consumers and maintain their profit margins largely depend on the magnitude of the tax increase and consumers’ purchasing power to absorb higher prices. Other than prices, beer demand is also sensitive to economic conditions and the festive mood in the country. 

Domestic beer sales volume has been volatile over the past 10 years – a drop of 9 per cent in 2009 amid political protests and an excise tax increase, a 14 per cent decline in 2011 due to severe flooding, and a 5 per cent fall in 2013 after a restructuring of the excise tax, according to figures from Thailand’s Office of Industrial Economics.

Thailand’s local spirits market has few players, with the largest, Thai Beverage Plc, occupying a 90 per cent market share by sales volume. Limited competition, together with inelastic demand for spirits, should support the operating performance of spirits producers over the medium term. Producers with a wide range of products in terms of alcohol content or price would be able to provide customers with a variety to match their purchasing power.