Tobacco Monopoly feels the burn from new excise rates
The state-run Thailand Tobacco Monopoly (TTM) is expecting the first loss, of about 1.5 billion baht, in its 79-year history, following new excise tax rates which it claims have benefitted importers of foreign cigarettes.
This year, the TTM will plunge into the red as it has not been able to reduce its huge spending in light of the tax, implemented in September last year, said Daonoi Suttiniphapunt, the company's managing director.
Under the new tax structure, packs of cigarettes with a retail price over 60 baht are subject to a 40% levy while cheaper packs enjoy a lower rate of 20%.
Sellers of some foreign brands have subsequently lowered their prices to avoid the high tax. This is possible because they bear fewer production costs than the TTM, Ms Daonoi said.
The spokeswoman said is not financially viable for the TTM to reduce its cigarette prices and, as a result, it has lost market share to its competitors.
At present, its sales volume accounts for about 55% of the market, a sharp drop from its 80% share before the tax structure change, she said.
The Finance Ministry-owned state enterprise is also shouldering huge costs for employment, expensive tobacco leaves as well as development of a new factory, Ms Daonoi added.
Currently employing more than 3,000 staff, compared with only 1,000 employed by foreign cigarette manufacturers, the TTM is also required to buy tobacco domestically at "unusually high prices", she said.
The state enterprise is paying farmers 22 baht per kilogramme, which is higher than the market price.
With the expected drop in cigarette sales, it expects to buy 40% less tobacco this year, she said.
Other spending that contributes to the poor state of the TTM's finances includes running its hospital and investment in a public park inside its factory compound.
She admitted that liquidity is likely to become an issue from May onwards, hence the TTM will seek its first ever loan later in the year to buy a new machine for a its factory project in Ayutthaya. The amount asked for will be upwards of one billion baht, Ms Daonoi estimated.
The TTM has called on the Excise Department to revise the new tax structure.
It is also undertaking an original equipment manufacturer (OEM) project, which will allow it to produce cigarettes for other brands, Ms Daonoi said.
The TTM also plans to sell Thai cigarettes overseas, thanks to the increased production capacity that its Ayutthaya factory, which is expected to operate by 2020, will provide.