Alcohol, No Ordinary Commodity: Tax Policy Implications for Thailand

Abstract

Alcohol is no ordinary commodity. Millions of people enjoy it safely if drinking in moderation. Alcoholic beverages are big business that creates substantial jobs, pay huge tax and contribute to our economy. But if consume excessively and regularly, alcohol is addictive substance that can cause brain disease beyond a reasonable doubt. Despite a chronic, potentially relapsing disorder and dependence bio-behavior, alcohol is widely distributed and consumed until Thailand has become the world’s fifth largest alcohol consumption per capita behind Russia and UK. Brewery, distilled and winery beverage industry or alike is in the business of delivering alcohol. Because alcohol is a practically drug-like chemical goods and its industry is natural oligopolistic, simple business concept and free market approach are not applicable for national policy making consideration. When this market fails to correct negative externality generating from alcohol, the government is justified to intervene, regulate and tax to redistribute for welfare enhancement. We examine how tax structure based on obsolete assumptions has de-merit incentive for Thai people to drink cheap beverage with high alcohol content that is addictive and chronically harmful to public health. Potential tax leakages with estimated over THB 30bn per annum were also discussed. To improve social welfare, we recommend on how to narrow fiscal gap - with little or no tax rate hike. To amend specific or alcoholic tax rate ceiling is the first best solution, while synthetic volume tax rate is presented as second best with only ministerial directive. A more equitable and more simplified tax regime is needed. Public health concern, social cost, fiscal budget rational and political economic perspectives are among fine issues that need to be addressed comprehensively. Other administrative tax based measures using information technology should be utilized for differential measures - to effectively increase social welfare as well.