I have a strong reason to oppose the recent decision by the Finance Ministry to delay an increase in excise tax on cigarettes for another two years, from next year to October 2021. The delay doesn't spell good news for the state coffers, which is one consideration. Another concern is that it would deal a harsh blow to the state's efforts to discourage young smokers.
The decision must have been influenced by a petition from the state-run Thailand Tobacco Monopoly (TTM) stating that the single-rate 40% higher levy would harshly affect sales revenue. It would also impede on the state agency's plan to buy tobacco from local farmers.
Wichit Chantanusornsiri is a senior economics reporter, Bangkok Post.
The TTM's complaint that importing more cigarettes would cause its revenue to plunge is not justified. This is because we have to take into consideration that the TTM, as a monopoly agency, has an enormous advantage over its foreign competitors, while the new levy was scheduled to be applied to all cigarettes in the market.
By virtue of being a monopoly operator, the TTM has enjoyed certain privileges over its competitors, which must contend with import taxes and transportation costs.
However, the agency insists the revamp in the excise tax structure, which was implemented late last year to replace the old factory price and the cost as well as insurance and freight (CIF) values, has already adversely affected its sales.
The TTM said the restructured excise tax has caused it to lose substantial market share to foreign cigarette importers, which are able to exploit the new excise levy by cutting retail prices to ease their tax burden.
With the new structure, cigarettes are liable to be taxed in terms of both volume and value, regardless of price. The levy in terms of volume was raised to 1.2 baht per cigarette, up from 1.10 baht, while the tax based on value was divided into two rates: 20% of the suggested retail price for cigarettes priced below 60 baht per pack, and 40% for those priced over 60 baht.
Due to the revamped tax structure, the TTM said, its sales have decreased from 42 billion cigarettes a year to 30 billion. As a result, it expects to see its profits plunge from 7-9 billion a year to 200-300 million baht this fiscal year.
As a result of its declining revenue, the TTM said it may not be able to deliver 88% of its net profit to the Finance Ministry, as it has done in previous years. Last year, revenue from the agency accounted for 4.96 billion baht.
It can hardly be denied that delaying the new excise tax, which would equally benefit foreign cigarettes, would significantly compromise the state's anti-smoking campaigns, which aim to prevent young people from developing a smoking habit.
A number of studies strongly suggest that smoking is bad for people's health. Several thousand smokers die from pulmonary congestion every year. More importantly, medical treatment for people with smoking-related lung diseases has become a huge burden on the state budget, with the cost surpassing 10 billion baht a year. Not to mention that smoking-related diseases have affected the country's economic performance, with more people taking sick leave from work. The damage to the economy runs as high as 50 billion baht a year.
But instead of pushing ahead with the new tax, which would see all tobacco firms pay the same rate of 40%, the TTM should think of organisational reform. A lack of reform has resulted in the agency delivering a poor performance over the past decade. The TTM has lost substantial market share to its foreign competitors, who are now able to see a many-fold increase in market share. In some cases, their share of the market has quadrupled from 10% to 40% in two decades.
Needless to say, the TTM has not done enough market research into, or assessments of, its competitors. Most of them are global firms that have slowly but firmly penetrated the Thai market despite having to cope with extra costs, for example in terms of import taxes and logistical costs.
In sum, organisational reform is no longer an avoidable option. In times of crisis, this serves as a golden opportunity for the TTM to marshal its troops (employees) for the sake of its very survival.
That being said, I still have much faith in Daonoi Suttiniphapunt, the TTM's managing director. Her reformist vision will increase the competitiveness of the TTM as well as its income.
She has played a vital role in repurposing hemp in innovative ways across various industries including cosmetics, construction materials, and security-like bullet-proof vests.
Hemp fibre can replace tobacco sheets, which can reduce the amount of hazardous materials smokers inhale. Using hemp can also decrease the amount of nicotine and tar ingested, resulting in a product less harmful to people's health.
Delaying the new excise tax is an ill-conceived idea, to say the least. In such an eventuality, the real winners would be those foreign cigarette operators, which stand to benefit from this undeserved windfall.