Fuel excises may mark the start of so-called crony capitalism

Economists at the National Institute of Development and Administration (Nida) have recently gone on record as saying they believe the government’s taxes on fuel are unnecessarily high.

In the meantime, a professor at the School of Development Economics has suggested that certain fuel subsidies are only in place to benefit a particular group of businesses, reflecting that this provides a good example of crony capitalism at work.

Another professor at the School of Development Economics believes the fuel excise problem is stoked by a tax structure that has pushed retail prices to highs well beyond that of Thailand’s neighbour, Malaysia.

Petrol is sold, on average, for 45.75 baht per litre in Thailand, yet in Malaysia it is just 18.63 baht per litre. The costs of actual production are virtually the same, with a litre taking 25.1 baht in Thailand and 23.92 baht in Malaysia.

The reason the difference in price at the pump comes down the government taxes. These run to 20.64 baht per litre in Thailand, while Malaysia the same figure equates to just 5.29 baht per litre.

Nida notes that the Thai government collects taxes in varying amounts depending on the types of fuel, and most consumers are completely unaware of the reasons for the disparity.

For example, E85 fuel attracts a substantial subsidy of 11.4 baht per litre. E85 consists of 15 percent petrol and 85 percent ethanol, and the subsidy comes about from heavier taxes on petrol to cross-subsidise E85.

This is where crony capitalism might have reared its head. Promoting and selling E85, it is suggested, might benefit certain groups of businesses involved in the production of alcohol. One professor argues that this means some wealthy businesses are using their political connections to circumvent government regulations, and this, he says, leads to unfair competition.

According to one professor, E85 has less negative impact on the environment than fossil fuels, but this is not the reason it has been subsidized. Energy policymakers have calculated subsidies based on the rate of return only.

Nida nonetheless notes that Thailand’s fuel prices are lower than average prices in many other nations. Diesel, as an example, is priced at 29.99 baht per litre whereas the global average price is 50 baht per litre. In this category Thailand is ranked 76th out of 86 countries measured.

A Bangkok senator, Rosana Tositrakul, who is chairman of the Senate’s panel on energy, was quoted as saying that oil prices have risen far more than they should, citing the disparity between Thailand and Malaysia as a key example.

She noted how the Oil Fund, which was initially established to stabilize oil prices is now being used to subsidise cooking gas prices.