The Excise Department will cut the tobacco tax to 2.5 satang per gramme from 10 satang for one year, starting Jan 1, 2020, to give farmers time to adjust.
The move comes after tobacco farmers cried foul that a higher tax rate of 10 satang per gramme enforced from May 7, 2019 had taken a toll on their income and was inconsistent with the Excise Department's recent decision to push back a 40% cigarette tax hike by one year to Oct 1, 2020.
Only retail farmers who produce fine-cut tobacco or those with an annual production output of up to 12,000 kilogrammes are subject to the temporary excise tax cut, said Nutthakorn Utensute, director of the Excise Department's Bureau of Tax Planning.
Setting the benchmark at 12,000 kilogrammes of tobacco farming output is meant to help retail farmers.
Thailand has 10,450 tobacco growers, of whom 15 have production capacity of more than 12,000 kilogrammes a year. They all live in Nong Khai, Phetchabun, and Chaiyapum provinces.
The previous government approved a hike in the excise tax on tobacco to 10 satang per gramme from 0.5 satang to narrow the retail price gap between factory-made and hand-rolled cigarettes after many smokers switched to hand-rolled.
The Public Health Ministry's announcement that hand-rolled cigarettes are more harmful to health, given that they have no filter, also prompted the Excise Department to raise the tax rate.
In a related development, the Excise Department is allowing tobacco growers to be tax-exempt when selling tobacco leaves to manufacturers. The tax privilege is also offered to middlemen who buy tobacco leaves from farmers and sell to manufacturers.
Tobacco production volume is expected to nearly double from 14 million kilogrammes last year to 26 million this year as locally bred tobacco is taken into account starting in 2019, he said. Tobacco production is forecast at 24-25 million kilogrammes next year.
With the change in excise tax structure from September 2017, cigarettes are liable for tax by both volume and value, regardless of price. The levy for volume was raised to 1.20 baht per cigarette from 1.10, while the tax based on value was divided into two rates: 20% of the suggested retail price for cigarettes priced at 60 baht or lower per pack, and 40% for those priced above 60 baht.