Using a dual cigarette tax rate has reduced the government's cigarette tax revenue by roughly 23 billion baht, says Tobacco Authority of Thailand governor Poomjit Pongpanngam.
As a result of the new cigarette tax structure, sales have been dropping dramatically, said Mr Poomjit.
Results of an empirical analysis of cigarette tax avoidance in Thailand last year found cigarette tax revenue amounted to 70 billion baht, with tax revenue lost from illegal sales estimated at 23 billion baht or 25% of total cigarette tax revenue.
The largest consumers of illicit cigarettes as a percentage of total consumption nationwide is the southern region at 70%.
A two-tier system is applied for excise duties on cigarettes, which comprises a 25% tax on cigarette packs with a retail price of up to 72 baht to ease the burden on low-income earners, and 42% for packs priced higher than 72 baht.
Packs are also subject to an additional tax of 1.25 baht per cigarette, regardless of the retail price. This means one pack has an additional tax of 25 baht, as there are 20 cigarettes per pack.
He said the Finance Ministry is likely to restructure the cigarette tax to a single tax rate. However, smuggled foreign cigarettes would still persist as they are cheaper than legal cigarettes by two or three times, said Mr Poomjit.
The analysis found last year the number of illicit cigarettes increased by 22.3% from 2022, while in 2022, the total rose by 15.5% from 2021.
Farmers under contract with the authority are aware the agency's earnings are affected by the new cigarette tax structure, he said. Since the authority's profits have taken a downturn, it has been buying 50% less tobacco from farmers the past three years, reducing the income of 500,000 farmers.
The agency recently announced it was earmarking 1.3 billion baht to provide a production subsidy for tobacco farmers.