Next week, the cabinet will decide on a new excise tax structure for cigarettes that will be implemented from Oct 1.
The cabinet is reported to have been focused on deciding between two major choices --using a new flat tax rate of 40%, regardless of the retail price, or sticking with the two-tier system. Under the current rate, a 20% tax rate is applied to the retail price for packs costing up to 60 baht, and 40% for more expensive retail packs.
The issue of cigarette tax has drawn vast amounts of attention from the public and media because this particular levy is more than just a fiscal issue. The tax structure involves various aspects such as health impacts, healthcare budget, smuggled cigarettes, the local tobacco industry, tobacco growers and rich foreign tobacco companies. For years, policy makers have utilised tax measures to advocate anti-smoking campaigns while at the same time assisting the local tobacco industry and local cigarette market.
Indeed, a flat tax rate of 40% was scheduled to be applied in October 2019. This hefty flat rate has been favoured by health experts and anti-smoking campaigners who have lamented that the cigarette tax in Thailand has not been high enough to deter people. Needless to say, the pricey flat rate was opposed by the authorities and tobacco farmers.
The authorities, who monopolise domestic tobacco production, alongside tobacco farmers, have requested that the Excise Department review the 40% flat tax rate because a single-tier rate would affect the income earned by the authorities and farmers. The Finance Ministry previously requested the cabinet extend the two-tier tobacco tax rate to the end of September 2020. This extension was prolonged through to September 2021.
But the policy makers need to formulate a clear direction for their cigarettes policy. It is impossible to use tax measures to serve all purposes at once. While several countries use tax measures to reduce cigarette smoking, local tax has played far too many roles and has hardly accomplished anything.
Under the current two-tier tax, local cigarettes made from local tobacco have barely survived, while local tobacco farmers suffered losses when giant transnational tobacco companies lowered their cigarette prices to compete with local products. In terms of health, the decline of smoking in Thailand is the outcome of the anti-smoking campaigns while anti-smoking advocacy groups have argued that the decline in smoking could have made more progress had the country imposed a flat and more expensive tax on cigarettes. A survey in 2017 showed 72,656 people died from illnesses caused by smoking. Meanwhile, the Public Health Ministry spends 77 billion baht annually to treat smoking-induced disease and illness.
There have been arguments that a heavy tax will lead to smuggling and the demise of the local tobacco industry. The government must find appropriate measures to deal with both problems. For contraband cigarettes, the government must use law enforcement and inspections -- not lower taxes -- to solve it.
To help local tobacco farmers stay afloat, the state must find better ways for them to cope with the eclipsed tobacco industry by helping them shift to more lucrative sustainable crops or using revenue from taxes to improve their livelihood. Policy makers must not lose focus. The state has a prime duty to create a society that is healthy and liveable. Cigarette taxes and any fiscal polices should serve that paramount goal, first and foremost.