Potential competition from imports has Excise concerned

As the ASEAN Economic Community (AEC) looms ever larger on the government revenue landscape, the Excise Department has made it clear it hopes to adjust the way its part of the tax equation is calculated.

The department is worried about potentially greater competition from imported goods as taxes and tariffs come down, especially within what will eventually be the AEC. While the new economic bloc will promote cross-border trade, which is good for all parties, there are likely to be certain local manufacturers who will find it tougher to compete.

Import tariffs for many goods will drop to nil for products made in the ASEAN member countries and this will have an effect on the amounts of excise tax collected on imports.

Excise tax on imports is based on the cost, insurance and freight price (known generally as CIF) plus the amount of import tax and VAT. With some products scheduled to have a nil import tax component, the Excise Department recognises their revenue impost percentage will be reduced and it is possible the imported goods will be cheaper than those made in Thailand.

This price advantage could easily lead to the collapse of certain manufacturing companies in Thailand which would in turn lead to higher unemployment and, of course, reduced tax incomes for the government in general.

Currently, excise tax on domestic products is calculated on the price when it leaves the factory or on the cost of producing the item plus an agreed percentage profit margin for the manufacturer.

The Excise Department believes it would be better to streamline the calculating process and move away from what is now a two-tiered tax system.

The general consensus within the Excise Department is that it should base its tax calculations on the retail price of any item. This would also remove or at least significantly reduce the number of disputes which arise between the department and both local and overseas manufacturers and importers.

It is claimed, with some justification, that a change to basing excise tax on retail prices will mean an overall increase in excise revenues for all manufacturers and producers, both local and foreign. This is because retail prices are always higher than ex-factory or CIF assessments.

Of course, to offset this the rate of excise tax would almost certainly have to be lowered to avoid running into this situation. The number crunchers within the Excise Department would have to arrive at a set of figures which should be revenue neutral, that is, the overall income from excise tax would remain similar to what it was prior to the restructuring of the calculation rates.