Rocky start for Thailand’s latest alcohol tax reform

As the newly proposed alcohol tax reforms in Thailand kick in, Nimmi Malhotra looks into the impact on the country’s wine trade.

Thailand has decided to cut its prohibitive alcohol taxes. The tax changes were announced earlier this year, and took effect from 1 March. The cabinet proposed an alcohol tax slash at three levels. First, the import duties of 54% will be reduced to 0%. Second, the excise tax will drop from 10% to 5%. Another excise tax, which applies to the volume and percentage of alcohol and calculated at 1,500 Bhat (£32.84) per litre for every 100 degrees of alcohol content, will now come down to 1,000 Bhat.

Christophe Imbert of Comte de Sibour Ltd, a wine distribution company with a strong focus on on-trade distribution, confirmed to db that the excise cuts are fully confirmed, and the import cuts will be applied to every exit from the bonded warehouse starting this week.

There are two reasons behind the tax system overhaul, according to Michel Conrad of Independent Wine and Spirits Ltd, a leading beverage importer with a global portfolio including Treasury Wine Estate and Concha y Toro.

“First, the new government wants to promote tourism,” he says. Secondly, “they are trying to get rid of entities who are under-declaring the correct amount of the wine they are importing.”

But businesses have faced challenges since the change in rules came into force.

All importers are now required to re-register every label with the excise department, and this time around, the customs and excise will determine the wine value.

One importer revealed to db that the Thai excise website crashed two hours after the registration opened. As recently as 10 March, businesses were still unable to pay duties on any bottles of wine since the changes came into force at the beginning of the month. But they said they hoped the situation would change this week.

Despite the teething problems, the industry is largely optimistic. Pairach Intaput, president of the Association of Thai Sommeliers, told Nimmi Malhotra: “People are feeling happy because the wine price will be surely cheaper, but we need to wait and see the new result after calculation compared to the old tax.”

Prior to the change, concerns were raised over the impact the new rules would have on alcohol-free beer. Analysts from GlobalData said the changes could “clip the wings” of a the niche category before it has properly taken off. The changes are also likely to impact entry-level wines more harshly, though premium wines could become more accessible to Thai consumers as a result of the tax changes.

Currently, the calculations favour premium wines (valued at 1000 Bhat and above) more than the low to mid-priced wines (valued at below Bhat 1000) — a shift from the former system. Wines priced under 1000 Bhat were previously exempt from the excise tax of 10%. Under the new taxation system, all wines will be taxed at 5%.

According to Imbert, the under 1000 Bhat wines constitute the value segment, making up 95% of wines on retail shelves. The 5% taxation will eliminate most of the savings gained through import duty exemption and excise per volume tax drop.

European wines also stand to benefit most. Countries with a Free Trade Agreement with Thailand like Australia, Chile, New Zealand, and Peru, are exempt from paying import duties, meaning they won’t see any changes. With the new cuts, “it’s going to put them on the same level playing field as Australia and Chile,” Imbert says.

Among the flurry of re-registration and new tax calculation, the question remains: When will the consumer see the price cuts on the retail shelves? The answers are varied.

“It’s not like tomorrow everybody will drop their prices by 30%. It’s going to take a long time to implement it step by step,” says Conrad, as the price changes must be reflected across the supply chain. “Maybe by the end of the year, we could see some effect.”

The impact on retail shelves may be faster. “Because when we set up the new price, the retailer automatically reflects to the consumer,” he adds.

Imbert, who specialises in on-trade distribution, says that the importers will reduce the costing. “There is so much competition that we will pass the cut to our customers, whether they’re retailers or restaurants,” he says.