Cigarette tax hike likely pushed to 2021

Cigarette tax hike likely pushed to 2021

TTM claims to be unable to handle 40% levy

Headquarters of the Thailand Tobacco Monopoly (TTM). The Finance Ministry has rejected a proposed rise in cigarette taxes for at least three more years. (File photos)
Headquarters of the Thailand Tobacco Monopoly (TTM). The Finance Ministry has rejected a proposed rise in cigarette taxes for at least three more years. (File photos)

The Finance Ministry has informally delayed doubling the excise tax on cigarettes to 40% for another two years to October 2021, claiming the higher levy will be a heavy blow to state-run Thailand Tobacco Monopoly's (TTM) sales revenue, and impede on its plan to buy tobacco from local farmers.

The ministry has informally agreed with the plan to postpone raising the excise tax from next year to 40%, said Daonoi Suttiniphapunt, managing director of TTM.

TTM's sales fell sharply to 30 billion cigarettes from 42 billion a year after the excise tax structure was revamped last September to replace the ex-factory price and the cost, insurance and freight (CIF) values with the suggested retail price as the base for excise tax computation.

TTM recently claimed that it lost market share as foreign cigarette importers are exploiting the new excise levy by cutting retail prices to pay a smaller tax burden. TTM has also said that the excise tax on cigarettes is taking a bite out of its operations, for which the company expects to see a plunge in its profit to 200-300 million baht this fiscal year from 7-9 billion a year in the past.

The impact from the excise tax structure will hit TTM harder once the single rate of 40% of the suggested retail price goes into effect for fiscal 2020, starting from Oct 1, 2019, in contrast with the current 20-40% levy.

The upcoming single rate is predicted to result in TTM's first-ever loss in its history.

With the current excise tax structure, cigarettes are liable for tax both in terms of volume and value, regardless of price. The levy in terms of volume was raised to 1.20 baht per cigarette from 1.10 baht, while the tax based on value was divided into two rates: 20% of suggested retail price for cigarettes priced below 60 baht per pack and 40% for those priced more than 60 baht.

In two years, the excise tax for cigarette packs priced 60 baht or lower will be raised to 40% -- the same rate applied to packs priced above 60 baht.

In another development, Ms Daonoi said TTM's new plant has a maximum production capacity of 60,000 cigarette a day.

Deputy Finance Minister Wisudhi Srisuphan, however, said he does not know in detail about the Finance Ministry's planned delay raising the tax on cigarette to 40% for another two years.

He admitted it is a challenge for TTM's executives to steer the state-owned cigarette maker through the changing business environment as TTM is a state enterprise, which by nature has difficulty in adapting its business.

After presiding over a ceremony to open TTM's new plant in Ayutthaya province, Mr Wisudhi said he instructed executives to explore business directions to survive.

TTM had long been the top income contributor to the government's coffers and played a role in contributing income to local administrative organisations as well as 15,000 tobacco farmer households, over 80,000-90,000 rai of plantations across the country.

TTM is being faced with intensified competition from cigarette importers, limited distribution channel and more health-conscious consumers. Over the past five years, following global campaigns to stop smoking, Thailand's cigarette consumption declined by 10%, above the 7-8% slump in other countries.

Like other businesses where vertical expansion is constrained, TTM must shift towards horizontal expansions, and TTM's executives must conduct studies to decide the organisation's direction in the next 3-5 years, he said.

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