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Tobacco Excise Tax Reduction Expected


The Excise Department is planning to reduce base valuation prices used for calculating taxes on cigarettes following complaints from cigarette importers of unfair treatment. The department had previously announced a maximum retail price as a base for calculating excise taxes, which in turn were based on CIF (cost, insurance and freight) prices as declared by importers.

But declines in CIF have led the department to consider revising downward its maximum prices, possibly by around 10 baht per pack, which in turn will lead to a lower overall tax burden for importers.

In addition to excise taxes, the maximum retail price is also used as a base for calculating value-added taxes for goods. The maximum price in practice is often higher than actual retail prices paid by customers.

Chawewan Kongcharoenkikul, a deputy director-general of the Customs Department, noted that under the most favoured nation (MFN) concept of the World Trade Organisation, tariffs must be levied equally for goods imported from various members.

As a result, the maximum retail price method of calculating excise taxes, which is set individually on a brand basis, may not be in keeping with the principles of MFN.

Indeed, cigarette importers have been pushing this argument, citing the fact that cigarettes produced by the government’s Thailand Tobacco Monopoly have excise charges based on ex-factory prices whereas imported cigarettes are taxed based on the maximum retail price concept.

Dr Chawewan said many countries, such as the Philippines, used actual market prices for calculating taxes.

Allowing taxes to fluctuate based on actual market prices rather than an arbitrary figure determined by the state in turn helps foster genuine competition in the market among producers.

From the perspective of the Excise Department, however, using maximum prices ensures that tax revenues are relatively stable when compared with calculating taxes based on actual market prices.

Historically, the right to establish and tax based on maximum retail prices was given to authorities during a period when the Thai economy was dominated by monopoly players with relatively little competition in the market. As a result, maximum prices were seen as actually benefiting consumers by limiting the scope of firms to take advantage of their market dominance through pricing.

But Dr Chawewan acknowledged that the economy today differed significantly from that of past decades, as competition now was relatively free for a wide range of products and services.

”At the end of the day, whether we like it or not, we can’t avoid having to comply with international regulations,” he said.

Dr Chawewan said pressure from policymakers for tax officials to meet revenue targets was one factor influencing the valuation process.

At the same time, valuation is open to interpretation. The concept of GATT value, for instance, a key principle in assessing import tariffs, calls for calculations to be based on transaction value. But proving that a transaction value was valid and included charges such as royalties that should also be included was difficult, Dr Chawewan said.

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