LIQUOR TAX REFORM IN THAILAND

LIQUOR TAX REFORM IN THAILAND

• DEVIPRIYA MURGAN 225388
• THINESSHA MURUTHI 228327

• Thailand government has been collected

Approximately bath 69 billion in excises tax from the production and sales of beer and spirits in the year 2004.

Which represents 25 percent of the total excise tax or around 7 percent of total government revenues.

• Liquor taxes in Thailand is quite high.
• Taxes divided into five types :
• excise tax
• import duty
• multiciple tax
• health tax
• value added tax.

• Precondition for a reform proposal is that it must be both politically and administratively feasible.

• While there is considerable public support for acting on the issue of alcohol consumption.

• The government is also concerned about the effect the increasing taxation might effect domestic producers.

Effects on overall consumption, targeted groups and risky behavior.

• To achieve the socially efficient level of alcohol consumption

1. Need to apply and excise tax equal to the social externalities that alcohol consumption generates.

• 2. Optimal commodity taxation would also demand that to achieve efficiency, effective excise tax rates are set in proportion to the inverse of the price elasticity of demand of individual alcoholic beverages.

• Reduce the purchase and consumption of commercially produced alcohol.
• Contribute to harmful drinking patterns of other beverage types , both licit and illicit.
• Increase in crime and a new range of social problems.
• Government hoping to increase its revenue through taxation of beverage alcohol may be revenue fall as non-taxed beverages are substituted for those that are taxed.

What perspective should the government take into consideration in making decision?

• There are three primary alcohol policies introduced by Ministry of Finance.

• Decrease the alcohol consumption.
• Protect the local liquor industry .
• Reduce the impact on government revenue from excise collection.

• The issue liquor consumption can be considered as an activity that generates social cost unpaid for in the market price of alcoholic beverages.

Liquor tax reform in Thailand for some reasons.

• Main source of government.
• The government imposed tax to develop the well-being of its people in the field of social and economic .
• To maintain the rules and regulations of the country.

• Studies have shown that price elasticity of demand of alcohol depends on some of factors, including :

• types of beverage alcohol
• drinking cultures
• changes in disposable income
• target populations
• long- or short-term effects.

Economic View

Three departments involved in the collection of tax on liquor.

• Excise department

• Customs department

• Revenue department.

• Contributes strongly to government revenue in the form of taxation and excise duty

• And represents an important component of the balance of trade in many countries.

• Alcohol retail is controlled through state-run monopolies, sales are a source of net profit for the government.

Price elasticity of demand

• Higher prices in beverage alcohol, either through price differences or taxes result in

a change in drinking consumption patterns, particularly for certain target at-risk populations.

• As a result, the economy would grow faster.

• The Thailand government, they claimed, could get more tax revenue by taking a smaller slice (lower tax rate) from a larger pie (higher GDP).

Option three can be choose by the Thailand government

• To reduce the overall level of alcohol consumption maintaining revenue derived taxing alcohol.

• If tax rates were lower, and people got to keep more of their incomes from work or investments

• This would create incentives to work more and to save and invest more.

Conclusion

• When the tax of the liquor increase in Thailand, the price of liquor also increase.
• Although the price increase, it does not reduce demand and supply of liquor.
• Maybe the people in Thailand reduce the amount of liquor to buy, but the tourists always keep buying liquors.
• By this, the revenue of government increase, the health of population also increase.

Liquor

Types of liquor

• Vodka
• Rum
• Whiskey
• Tequila
• Gin

• Liquor is produced by distilling fermented grain, fruit, or vegetables. This excludes beverages like beer and wine, which are fermented but not distilled.

• Liquors typically have no added sugar. Liquors with added sugar and flavorings are known as liqueurs. Grand Marnier, Frangelico, etc. are liqueurs.

How should the government balance different objective?

• These two segment from a majority of the Thailand alcohol market and closing the gap between their effective tax rate is a precondition for efficient liquor tax reform.

• Any feasible form of alcohol excise is likely to be socially regressive, because poor Thais tend to spend a greater proportion of their income on alcohol compared with wealthier Thais.

• The goal of protecting the domestic alcohol producers can most effectively be achieve by using import duties rather than excise tax.

• Beer, a popular segment after market accounting for 43% of its total values, is taxed quite heavily they despite its high elasticity of demand.

• When compare with its closest substitute at the cheaper end of the market.

• There is a effective tax rate.

What should the government choose?

There are three options proposed by the excise department of the Ministry Of Finance to balance the liquor competitive objectives.

1. Collect taxes according to the amount of pure alcohol contain in all liquors based on payment of Bath 500 per liter of pure alcohol.

2.Apply a progressive scale of excise charges according to the type of liquor, combining taxes calculated on alcohol content with taxes calculated by price.

3. Third option is same as second option but lower the tax rate. It provides for a similar combination of taxes based on alcohol contain and value but with lower gearing.