Aug 28, 2013

Thai alcohol tax ceiling rises to the sky, politicians squeezing more out of my bottle of Chang


It is unbelievable how many problems this Kingdom faces on a daily basis from policies and politicians who tend to shoot their own feet. The latest story today comes from the Finance Minister and his merry friends.

On Tuesday, Finance Minister Kittiratt proposed a sharp increase in alcohol excise tax, and on Tuesday(same day?) the proposal was approved by the cabinet.

New excise tax ceiling
Maximum rate of 2000 baht per litre of 100% alcohol content for both fermented beverages(beer, wine), and distilled beverages(whiskey, brandy).

Current tax
Fermented Beverages - Maximum rate of 100 baht per litre of 100% alcohol content or 60% of product value, whichever higher.
Distilled Beverages - Maximum rate of 400 baht per litre of 100% alcohol content or 50% of value, whichever higher.

Excise tax calculation for alcoholic beverages to change
Taxes for domestically-brewed alcohol beverages are taxed based on ex-factory prices currently, while imported beverages are taxed based on Cost, Insurance, and Freight prices.

The new change will calculate based upon retail or wholesale prices, which will result in much higher tax revenue.

Charity Fund from excise taxes
1.5-2% of the total alcohol excise tax will go into this new fund to support the disabled, education and finance activities of the Excise Department. An estimation of the fund size will be about one billion baht.


Implications?
To be fair, the exact tax rates that will be imposed on alcoholic beverages are still yet to be finalized even though the new ceiling has been raised. However the expectations of the policy makers are still that tax collections from alcoholic beverages will rise sharply, so the final effect will still result in more expensive drinks in Thailand going forward.

I don't think the final price of a drink will rise very much as a result of this, although it remains to be seen whether it will cause the merry Farangs to think twice before knocking back a Chang or two.

Additionally, I personally believe that the high excise taxes and regulations on alcohol in Thailand are geared towards protecting its domestic big boys; Boon Rawd and Thai Bev, as potential market entrants and craft breweries are stifled and put off by the taxes and minimum capital investments.

Currently, excise taxes take up 50-60% cost on revenues for both Spirits and Beer for Thai Bev. Just last year on Aug 22, excise taxes of white spirits, compounded spirits and brandy rose which Thai Bev passed the cost directly to consumers.

Thai Bev's weak 1H results were the result of weaker domestic and international demand, also the drop in volume was due to the large purchases by distributors previously, before the last excise tax increase. Without any other major destabilizing events, distributors and vendors are likely to repeat the same this time round, to stock up on inventory before the new draconian excise taxes come into effect. This should boost sales for Thai Bev in the short term.


1 comment:

  1. Always wondered why the position of local breweries in the market was that strong. The (previous) tax calculation explains things a bit I guess.

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