Paying a heavy price
Although new tax structures to curb smoking have caused the cost of cigarettes to rise, some experts warn it could have unintended consequences
Smokers are now paying higher prices for their nicotine cravings after retailers and convenience stores made adjustments last week after the introduction of a controversial new excise tax structure earlier this month to curb smoking.
Authorities previously applied a value tax of 20% to packs costing up to 60 baht and 40% on more expensive packs. But the new scheme has raised the tax rate to 25% for packs costing up to 72 baht and 42% for more expensive packs. They have also raised the volume tax from 1.20 to 1.25 baht per cigarette.
However, experts have warned that the recent price hike may not be the best solution because smokers will switch to cheaper alternatives, particularly contraband cigarettes. Instead, comprehensive measures should be implemented to avoid the substitution effect.
Sold under the counter
"The market has been very chaotic. Shops are speculating cigarettes prices. Some are charging 70 baht for packs that originally cost 60 baht," said Varaporn Namatra, the executive director of the Thai Tobacco Trade Association.
On Oct 15, the Tobacco Authority of Thailand ordered shops to raise local cigarette prices from 55 baht to 63 baht, 60 baht to 66 baht, and 95 baht to 102 baht. They will also adjust imported cigarette prices from 60 baht to 68-72 baht on Nov 1 but will maintain a price freeze on those costing 150 baht.
Varaporn said higher prices will increase consumer demand for cheaper products, which is what happened during the previous tax adjustment. Sold at 25-30 baht per pack, contraband cigarettes are smuggled from neighbouring countries via land borders.
"The South is the largest hub of illegal cigarettes. This trade is prevalent in Phatthalung, Satun, Songkhla, Pattani, Yala, and Narathiwat. Smokers can buy under the counter there. If you go to Hat Yai, they are available in shops with opaque glass," she said.
Varaporn said the tax hike is counterproductive because authorities have lost a substantial means of income without reducing the number of smokers. In fact, cigarettes are subjected to regulations globally.
"Everybody knows that smoking is unhealthy, but it is a personal decision like drinking alcohol," she said.
Varaporn said tobacco will never disappear because other products will replace it such as electronic and roll your own cigarettes. Instead, authorities should educate the public about health impacts and offer other nicotine alternatives.
"Cigarettes are not our main product, but they encourage consumers to spend on other items as well," she said.
Using comprehensive measures
"Cigarettes and alcohol lead to profits which is lower than societal loss. That is why they are called sin tax and should be subject to control," said Prof Emeritus Dr Prakit Vathesatogkit, the president of the Action on Smoking and Health Foundation, which called for the application of a flat tax rate of 35%.
"Otherwise, cigarette companies will dump products to evade the impact of tax hikes under the two-tier system," he said.
Critics pointed out that the previous tax readjustment ended in failure. Panuphol Rattanakanjanapatra, the governor of the Tobacco Authority of Thailand, said its annual profits dropped from over 9 billion baht to 1 billion baht. Now, it is developing a hemp business to help around half a million tobacco farmers.
It also lost substantial market share to a foreign cigarette company. After the new scheme was put in place, a tobacco giant increased and decreased retail prices. For example, it dumped one of its mid-priced packs to compete with local products.
Dr Prakit said the net cost of each pack is only five baht, but the rest is tax and profits for retailers and companies.
"If they want high market share, they will charge lower prices. In the past, tax accounted for 70% of the retail price. Packs costing 60 baht had 45 baht tax," he said.
The physician-turned-full-time-activist said all types of cigarettes should be priced the same to discourage smokers from seeking cheaper alternatives, but the government has not fully increased tax on rollies because they are considered local products for low-income earners.
"They are sold at 12 baht but taxed 2 baht only. The substitution effect is our weakness which undermines anti-smoking campaigns," he said.
After all, the new two-tier system merits attention. Dr Prakit said studies show a 10% cigarette price increase will lower the smoking rate by an average of 4%. High-income earners won't kick the habit but middle-income and low-income earners will smoke less.
"Taxation can help us meet the target of reducing the smoking rate to 15% by 2025. It is the most important tool of all. If taxation doesn't work, we won't reach our goal, but even if it works, we may or may not achieve it, depending on whether cigarette companies will engage in countermeasures," he said.
The goal is in line with the World Health Organisation. The National Statistic Office has found that the smoking rate for people aged over 15 (57 million) currently stands at 17.4% (9.9 million), down from 19.1% (10.7 million) in 2017, but the mortality rate is on the rise.
"Smokers are getting older. Around 70,000 have already died this year. Of these, over 9,000 are passive smokers," he said.
While using cigarettes is a personal choice, governments are allowed to regulate consumption. When asked why countries don't outlaw tobacco products, he said it will increase demand for contraband items. Instead, they ratified the Who Framework Convention on Tobacco Control.
"Measures include taxation, bans on cigarette advertising and public smoking, support for alternatives to tobacco cultivation, treatment for smokers, and contraband cigarette control. All of them can help reduce smoking," he said.