Excise tax rejig looms
Beverage makers to lower sugar content gradually, while auto retailers are not worried
Ready-to-drink coffee and tea beverages will lose their excise duty-free privilege after the new excise law comes into effect on Sept 16, changing the tax computation base to suggested retail price.
But the tax imposed on other non-alcoholic drinks will barely change during the first two years of the law.
After the new law enters into force, ready-to-drink coffees and teas will be levied a 10% tax on their suggested retail price, plus a sugary drink tax rate that depends on the sugar content of the beverage, said an informed source at the Finance Ministry.
Bottles and cans of soft drinks with sugar content of 0-6 milligrams will be tax exempt, while 6-8mg will be subject to a 10-satang tax. Those with 8-10mg will be taxed 30 satang, 10-14mg will be taxed 50 satang, and more than 14mg will be levied one baht, the source said.
For example, a 1,000ml bottle with sugar content of 14% would have a sugary drink tax of 50 satang, the source said, while a 500-ml bottle with the same sweetness will be taxed 25 satang.
Organic laws concerning the new excise tax rates, which will apply to all 21 categories of products subject to excise duties except for alcohol, cigarettes and playing cards, have already won the cabinet's approval and the rates will be announced today.
Organic laws stipulating the new tax rates for alcohol, cigarettes and playing cards will seek cabinet approval shortly before Sept 16 to prevent people from stockpiling them to reap a windfall.
The suggested retail price that will replace the existing ex-factory prices and cost, insurance and freight (CIF) values is aimed at creating a fairer system for manufacturers and importers after some businesses were found to exploit these values to understate their tax bills.
The source said the excise tax of other non-alcoholic drinks will be changed to 14% of suggested retail price from 20% of the final wholesale price currently.
Finance Minister Apisak Tantivorawong said last week sugary drink tax rates will be gradually raised every two years over six years to allow sweetened soft drink manufacturers to reduce sugar in their beverages to improve public health.
For cars with engine sizes below 2,000 cubic centimetres, the source said the new excise duty will be 23% of the suggested retail price instead of 30% of the ex-factory price or CIF value to comply with the tax neutrality concept.
Members of the beverage, alcoholic beverage and automobile trade associations will meet on Aug 31 to discuss how the new excise tax system will affect their businesses. Members seek more clarification about specific tax rates, particularly on sweetened beverages, said a source involved with the issue.
The source said the government has communicated consistently about excise tax reform, emphasising efficiency of taxation, not raising the excise tax rate. Taxation efficiency is amplified by broadening the excise tax base for beverages, said the source.
The government has pledged tax neutrality for beverages that already pay excise tax, meaning their tax burden should not increase if they don't add any sugar.
Tan Passakornnatee, Ichitan Group Plc's chief executive, said the company will wait for clarity on sugary tax rates. The company plans to gradually reduce sugar in its drinks to lower its tax burden, he said.
Leading fruit juice manufacturers are also preparing to cut sugar in their beverage formulas to cope with the tax changes.
"We are preparing our product portfolio to align with the policy," said Ekaphol Pongstabhon, managing director at Tipco Foods Plc.
Mr Ekaphol believes the new tax scheme will not affect its business much because it sells premium fruit juice, where the sugar is from natural products. But the company plans to launch a new line of fruit juices that contain less sugar.
Roongchat Boonyarat, chief operating officer of juice rival Malee Group, said it may be slightly affected by the new tax measure because if the company moves to use natural sugar in its drinks, operational costs will increase.
"We are conducting a feasibility study on new sugar sourcing and exploring new opportunities in other product categories," Ms Roongchat said.
Though the new regulation charges a higher tax rate the more sugar is in drinks, Thai sugar millers are unlikely to be affected by a drop in domestic demand as they expect strong export demand to offset the dip.
"Sugar is a commodity that is needed in everyday life and demand normally rises in line with economic growth. There should not be a big drop in demand since the Thai economy is still growing every year," said Parphan Siriviriyakul, chief executive of Kaset Thai International Sugar Corporation.
Thailand, the world's second-biggest sugar exporter after Brazil, produced 10 million tonnes of sugar in the 2016/17 crop, which ended in mid-April this year, said the Office of the Cane and Sugar Board. The country normally sets aside 2.2-2.5 million tonnes of sugar to secure domestic supply.
"Even if domestic demand drops, global demand for sugar is rising," he said.
The new automobile excise tax is unlikely to have a big effect on retail car prices as most producers are expected to maintain their prices, said Thanawat Koomsin, president of the Thai Automotive Industry Association. In particular, Thai-made vehicles should have similar prices if the government aims to collect a similar tax value, he said.
Surapong Paisitpatanapong, spokesman for the automotive industry club of the Federation of Thai Industries, agreed most distributors will maintain their retail prices.
"The car market is intensified, so higher prices affect buyers' decisions," he said.
Thailand's car market faced a huge change in early 2016 when the Excise Department altered the rate basis from engine size to CO2 emissions, including compatibility with alternative fuels such as E20 and E85. The retail prices of every model have risen by 7,000-200,000 baht, except for eco-cars, said Mr Surapong.