A Taxing Issue: Trying, and failing, to clarify the new vice tax system

 |  October 2, 2017

On September 16th of this year, the excise department finally released their much anticipated tax overhaul regulations on cigarettes and alcohol. The promised release of the new regulations were withheld from the public for months in order to prevent hoarding or panic buying, with rumours and speculation swirling as the nation’s sin purveyors and consumers waited with baited breath to see how much they would soon be paying for a bottle of Chang. The tax hike was suspected to be the biggest yet, and even Citylife breathlessly reported a statement released earlier this year by the excise department, stating that alcohol and cigarettes prices could increase by up to 150%. Soldiering through the accusations of ‘fake news’, I decided to dig a little deeper to find some answers for us all. And for a fleeting moment I had dreams of being the author of the most shared article on the subject — giving clear, concise and pithy information that anyone could get their head around.

Spoiler alert: I failed.

Following a press conference held by Somchai Poolsawat, the Director-General of Thailand’s Excise Department, on September 16th, I managed to get some numbers from his speech which I thought I could then use to come up with some rough estimates.

He began by explaining that under the new Excise Act BE 2560, alcohol tax would be worked out through a mixed system of alcohol content and the Recommended Retail Price or RRP as opposed to wholesale prices it is was previously calculated from. For me, a clear chicken and egg situation has now emerged. As someone who is not educated in tax economics or tax law, I was already confused. As I understood it, tax is added before producing a RRP, as the recommended retail price includes excise tax, import tax and value added tax, along with business rates, transport costs and a profit margin for the vendor. How then could tax be added to a price that already included it? I had to seek some advice on the matter, so I called Kittikhun Photiyarom from Wine Citizen, a Chiang Mai based wine and alcohol distributor to see if he could explain this paradox.

“We are all asking ourselves the same question,” said Kittikhun, who although confused still had some answers. “If I import a bottle of wine valued at 5 euros, then that is the RRP the tax will be calculated from. It is not the RRP for Thailand, but for the wine itself. 5 euros is roughly 200 baht so import tax will add roughly another half of that cost onto the sale price, and then there is the excise tax on top of that. Boxed wine will go up even more as it will be taxed for its sugar content too.” When all added up, a 200 baht bottle of wine should retail at around 500 baht.

Under the new tax, wines under 1,000 baht may have their tax reduced by a few baht, but the price change is negligible according to Kittikhun. When the RRP rises to over 1,000 baht, the new tax will add an extra 10% to that price. “A bottle that I would sell at 2,000 baht now has a price point of 2,200 baht. Whoever I sell it to will also mark up the price to sustain their profit margins,” he said.

It began to make sense, until I turned to the excise department’s website and tried to add the tax up myself. Take my advice; don’t. For a 600 baht bottle of wine the maths works out at 11 baht less in tax, but when calculated for a 1,500 baht bottle, the tax skyrockets to 708 baht. Something was wrong.

Cigarettes were the same. Somchai explained that “The Excise Department will collect 1.20 baht per cigarette (or 24 baht per pack) and then both importer and/or factory will be charged a tax based on the RRP – 20% for cigarettes under 60 baht and 40% if over 60 baht.” Currently, cigarette packets are taxed at 1.10 baht per cigarette so increasing to 1.20 baht sees an extra two baht on all packs of twenty. If a pack is currently priced at 68 baht, then it should increase to 70 baht. If we add the 40% RRP tax which is 27.2 baht then the final price works out to be 97.2 baht. An increase of 29.2 baht.

“Right now the whole industry is in disarray as we have no standard prices anymore.”

Turns out, despite the excise department listing a clear 2 to 15 baht increase in cigarette prices, when following their own equations, it simply doesn’t work out. Confused yet? I was from the get go.

“Most products will not reduce in price,” explained Kittikhun. “Right now the whole industry is in disarray as we have no standard prices anymore. Our old prices included the old tax, so we need to work out a reasonable RRP for all our products to ensure we don’t pay too much tax but also don’t break the rules. This leaves the market open to manipulation too, as distributors could reduce the price of their products to incur less tax.”

Even the officials at the excise department have yet to understand the new system. “We are calling them daily to ask them to explain to us so we can prepare for an increase in price, but even the officials seem to not fully understand it all,” said Kittikhun. “All we can do is wait for our next import to see what tax we need to pay.” I even visited the excise office in Chiang Mai to clarify a few questions but nobody knew the answers.

My thoughts of being a journalistic genius, finally explaining tax in a way people understood and then swiftly being employed by the government to do the same thing on a permanent basis was all but relegated to my bank of hopeless dreams. Jumping back to reality, it was clear to me that nobody had a clue. The plan to withhold information to prevent panic seemed to have backfired as no official, wholesaler, importer, store owner or consumer seems to have any idea how it works.

After weeks of research, all I could find were guesses and opinions. The maths didn’t add up and even tax officials were stumped. I had to revert to my best guess and go with what was evident so far. Wine will be going up roughly 10 percent a bottle, cigarettes will go up by 15 or 30 baht a pack depending on what information you go off, and beer may as much as double in price. Whiskey and spirits are anyone’s guess.

“In my opinion, prices are not going to go up by the maximum rate, and the excise department will probably provide some revision that reduces the increases and clears up the confusion in not too long…it wouldn’t be the first time,” suggested Kittikhun. “Until then, just expect things to randomly increase in price once new products start coming in, and we can work it out from there.”

By the time you read this new prices may hay already emerged, but for now I give up. I need a drink…let’s see how much it costs me.

You can visit www.ratchakitcha.sco.go.th for all the new tax details in Thai.