Earlier this year, Thailand’s Excise Department announced tax cuts on select types of alcohol.1 That, on the surface, sounds great. Lower taxes should mean lower booze prices, right?
The short answer is probably not. The long answer is maybe.
The new rules, which took effect on March 1 this year, slashed taxes at three levels.
Import duties were eliminated, dropping them from a steep 54% to 0%
Excise tax on wine was halved from 10% to 5%
The excise tax per volume and percentage of alcohol—previously calculated at THB 1,500 per liter for every 100 degrees of alcohol content2—was reduced to THB 1,000
And yet your glass of merlot likely costs the same as it did three months ago.
Why is that, you wonder? Let’s talk about it.
To make sense of the new taxes and their impact on your slush fund, I spoke to experts in Thailand’s wine, food, and distribution worlds—importers, bar and restaurant owners, and wine geeks. I’ve given them all anonymity so they can talk freely about financial practices that sometimes skirt the rules.
Help me do the math before we get into it.
The import and excise cuts are straightforward. There’s no more import duty, and that should drive down one of the biggest costs that affects consumers.
For the tax per volume and alcohol percentage, I’m going to punt to The Bangkok Post.
In February, Post writer Chairith Yonpiam put out a primer on how the Excise Department calculates taxation based on pure alcohol.
“To take a real-world example, if a 750ml bottle of wine has a declared price of 1,000 baht and alcohol content of 12%, the tax based on alcohol content would be 135 baht (0.75x12x1500/100) at the 1,500-baht rate. The excise tax applied on top of that (10% of 1,135 baht) would be 113 baht, bringing the total price to 1,248 baht. Under the new calculation, based on the 1,000-baht and 5% rates, the price would be 1,145 baht.”
Seriously, though, why aren’t the prices dropping?
Have you ever considered the elderly tax? How about the Ministry of the Interior tax?
Alcohol imports are bound to more taxes than you might realize, including:
The Ministry of the Interior tax: 10%
The Ministry of Health tax: 2.5%
The elderly tax: 2.5%3
The advertising tax: 1%
There are a few others, too, all of which range from 1-2%.
Each of these is based on the excise tax. Other government departments can’t tax the product, but they can tax the excise tax, which has now dropped to 5%. It stands to reason that a lower excise tax should yield lower overall prices, but there are still enough of these auxiliary taxes to keep import prices high.
One importer told me that most departments max out their tax rates immediately—meaning, set them at their ceiling—and they remain at that level for as long as the tax regime lasts.
Even more fun? More taxes can be added to the mix. While the excise tax will stay at 5%, other ministries can add new taxes to the excise tax. “And when it’s alcohol, no one fights back,” according to one source.
Who are the tax cuts supposed to benefit?
Government leaders have gleefully held the line that the tax cuts will drive tourism, as if a $4 discount on a bottle of wine that costs $40 will move the needle much.
“Did you guys hear? You can get Argentinian malbec in Bangkok, and now it only costs $15 more per bottle than it does in Buenos Aires!”
It’s more likely that the tax cuts weren’t meant to benefit anyone other than the Excise Department. As one source put it, “[The government] doesn’t trust the importers.”
As mentioned above, the taxes are based on a complex formula of alcohol percentage, volume, and retail price. Let’s key in on that last point. Who sets the retail price?
The area we’re discussing is about to get very gray.
International trade law makes it illegal for importers to dictate retail prices. But as one importer explained, you can reduce your tax burden, and therefore costs, by declaring a lower retail price. Even if a bottle of pinot noir would retail for THB 1,000, you might declare it at THB 600, for instance.
That doesn’t work for companies that sell their products in supermarkets—most feed their prices directly to the Excise Department—but it does for importers who only distribute to bars and restaurants.
And sometimes they sort of have to do this in order for the margins to work. The alternative is declaring retail price based on the price of a bottle of wine at your bar or restaurant, profit margins included.
Shirking tax obligations? Sure. But this financial sleight of hand also benefits consumers. Imagine spending more than you already do for a glass of wine.
How does lowering taxes help the Excise Department?
I want you to picture yourself in a poorly air-conditioned government building, dressed in your official brown uniform, jagged peaks of paperwork on the desk beside you. The fluorescent lightbulbs flicker as you punch numbers into a desktop computer powered by Windows XP.
Now that you’re with me, consider this: importers must re-list every label of wine they import, and Excise officials must verify them in their database.
As one importer explained, the Excise Department cannot set prices, but it can deny your product’s entry into the market if your prices are unrealistic (or for whatever reason they want, really). Because, again, they know people are flouting the laws and want to get their house in order. Transparency is good.
This will likely impact importers with well-known labels and easily identifiable prices. Small, independent, or lesser-known wines might slip through the cracks.
Of course, I assume all of the above means five low-paid bureaucrats are working in a windowless room in Dusit, flipping through paperwork and fact-checking prices from 8:30am to 5:30pm each day. It’s going to take some time. Whatever cost savings you can expect from the tax cuts might not happen for a while. If ever.
Surely this will help me somehow.
If you’re feeling miffed, I get it. But most of the experts I spoke to are optimistic that some good will come out of the amended tax policy.
Retail prices, for starters, will drop perhaps by 10-15%. It might take time for the dust to settle, but the bottle of cabernet sauvignon you buy from Gourmet Market will eventually cost less than it does now.
You’ll also get greater diversity. Wines from places like Chile, New Zealand, and Australia were already exempt from import duties because of free trade agreements. Now wines from Europe, the U.S., and elsewhere will have the same exemption.
One importer thinks local restaurants might start offering better products at the same prices you currently pay. If you’ve ever ordered the house wine at your favorite Italian restaurant, you know it’s rarely great. But a better wine at the same price would elevate the dining experience—win-win.
Some are rosier about the policy’s impact. One bar owner believes the new taxes could slowly change the drinking culture in Thailand.
Wine and spirits in much of Asia have a reputation for being high-brow and complex—the kind of drinks you need a masterclass to understand, even though you really don’t. I’ve sat through enough media dinners and “master mixologist” pop-ups for one lifetime. The drinking experience is often infantilizing and artificial, especially when a restaurant brings in a foreign expert, as if drinkers in Thailand couldn’t possibly enjoy wine if they don’t have WSET certification or weren’t born French.4
But one source says bars and restaurants could start to chip away at the gilded veneer of wine. They can sell bottles for 20% less than usual and let guests decide how or why they like the wines they’re drinking. Or they can keep prices high and continue to treat a bottle that costs $10 where it’s made as if it’s a luxury item.
In other words, lower prices could improve quality, breed competition, and democratize drinking.
They could also do none of the above, but it’s a tantalizing prospect regardless.
In short, we never should have expected a massive reduction in prices, and we can thank zealous government officials and the outlets who parrot them for the misleading information. But we can expect lower prices eventually, and perhaps a subtle evolution in the way we drink, too.
Namely, grape wine and sparkling grape wine (i.e., wine), fruit wine, and local liquors with less than 7% alcohol by volume, like some kinds of sato (rice wine).
I promise we’ll get to this.
My personal favorite.
These often overlap with talks about “educating” drinkers, which is just as patronizing.