New excise formula to raise prices of alcohol, but not as much as feared

Economy March 06, 2017 01:00

By WICHIT CHAITRONG
THE NATION

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CONSUMERS are needlessly worried that a new excise bill will drive the prices of alcoholic beverages into the stratosphere, the Excise Department says.



The bill, soon to be published in the Royal Gazette, has caught public attention after many people came to believe, wrongly, that the new tax rates will double the retail prices of beer, wine and liquor.

People were confused about tax ceilings stipulated in the new excise law, said Somchai Poolsavasdi, director-general of the Excise Depart-ment. The tax ceiling on beer, wine and liquor will be 30 per cent of retail prices, or Bt3,000 per litre of alcohol. The new tax ceiling on cigarettes is much higher, at 90 per cent of the retail price. 

“The ceiling rates are set for the next 20 years. But the applied rate will be much lower initially as we do not want to increase the tax burden,” Somchai said. 

Prapas Kong-Ied, deputy permanent secretary of the Finance Ministry, echoed Somchai’s remarks, saying that making tax rates too high would encourage smuggling, and then the cost of law enforcement would rise. 

“It is not worth the effort,” he said, trying to allay fears of a sharp rise in the prices of alcoholic beverages. 

Nipon Poapongsakorn, an economist at the Thailand Development Research Institute, said he agreed with the new law that will change the way tax rates are calculated. 

The new method will use retail prices as a base for tax calculation instead of using producer prices, as is done currently. The new tax will create a level playing field for producers, since the current structure allows some producers to take advantage of others. Retail prices will be decided by market forces, and tax authorities will have to enforce the law accordingly. 

Nipon said the current excise law had a big loophole as it allowed tax officials too much discretion, which often ended up in discrimination. 

Using retail prices to calculate excise tax rates will automatically lead to higher prices of alcoholic beverages, since retail prices are higher than producer prices. It will also lead to higher levies of value-added tax on beverage purchases, and in the end the cost of drinking will increase. 

“I agree that prices of alcoholic beverages should be higher than they are currently, as some types of beer are very cheap,” Nipon said. After the price increase, alcohol consumption will drop slightly for a while, but consumption will return to normal later, he said.

Sakon Waranyuwattana, dean of Thammasat University’s faculty of economics, was cautious about the new excise-tax structure. 

“Yes, I agree in principle, but I worry that implementation will be very difficult,” he said. 

He warned that producers and retailers could collude to avoid full tax payment. The new tax may also cost some local governments revenue, as consumers may choose to buy in other areas where prices are lower. One of the reasons for raising taxes on alcohol is to discourage consumption so as to reduce the harm to people’s health. But the Finance Ministry also wants to collect more tax to offset the drop in revenue from import tariffs resulting from free-trade deals.