Fewer smokers, surging taxes hitting Thai tobacco industry hard

TOAT recently announced that it was earmarking 56.16 billion baht to provide a 50% subsidy for production to tobacco farmers and independent tobacco curers.

Arun Pothita, secretary-general of Chiang Mai’s TOAT branch and a representative of an alliance of tobacco farmers in Thailand, said farmers under contract with TOAT are aware that the agency’s earnings are also affected by the tax structure.

Since TOAT’s profits have taken a downturn, it has been buying 50 to 60% less tobacco from farmers for the past five years, which has dropped farmers’ income by 900 million baht annually. Hence, Arun said, farmers have had to depend on support from the government’s central budget.

The new tax structure has limited TOAT to just covering half of the increased production cost for tobacco farmers, while the farmers are hoping that the other half of the subsidy will be allocated from the central budget, Arun added.

“But we are not sure when the farmers will get this other half of the subsidy,” he said.

He added that over the past five years, the government has implemented dual rates to cigarette tax and increased the rate twice, resulting a dramatic surge in cigarette prices.

“There is a price competition between imported cigarettes and TOAT cigarettes. They are priced at between 66 and 70 baht per pack.”

TOAT said the sale of cigarettes has been dropping now that people are kicking the habit, which has resulted in a large stockpile of tobacco. This is also forcing TOAT to cut down on the amount it purchases from farmers.

“If the government reviewed the cigarette tax structure based on the August 2021 Cabinet resolution to not increase the tax, the TOAT would have been able to resume stable sales and profits, as well as supported farmers without interfering with or burdening the central budget,” he said.

The tobacco industry has contracted significantly since the restructuring of the tobacco excise tax in 2017, during which the dual tobacco tax rate, which includes a 10% domestic tax, was adopted.

Tobacco tax revenue collected by the government dropped from 6.8 billion baht in 2019 to 5.9 billion baht in 2022.

This brought TOAT’s profits down by more than 98%, from 9 billion baht in 2017 to about 100 million baht in 2022.

During the 20th academic conference on tobacco and its impact on national health held recently, a senior official said the Finance Ministry has been encouraging tobacco farmers to grow alternative crops to boost their earnings.

The conference covered the hazardous impact of e-cigarettes and was jointly held by the Medical Association of Thailand, the Tobacco Control Research and Knowledge Management Centre (TRC) and the Thai Health Promotion Foundation.

Damrongsak Wan-aeloh, director of the Excise Standard and Collection Division 2, told the conference that the Finance Ministry has measures for compensating for the reduction in income for tobacco farmers due to the new tax structure, which resulted in a lower purchasing quota by the TOAT.

He said the ministry has been helping farmers and has set up a committee to launch campaigns urging tobacco farmers to switch to other plants like corn, onion or fruit.

Damrongsak said the committee also encouraged tobacco farmers to plant potatoes that can generate the same amount of money as tobacco.

“But some farmers harbour a die-hard belief that the tobacco purchase quota will return to the same as in the past, so they refuse to find alternative ways of earning income,” Damrongsak explained.

He added that tobacco was not on the list of cash crops, so the government agencies in charge of agricultural promotion often ignore tobacco farmers and do not seek funds to help them.

Damrongsak called on agencies in charge of agricultural promotion to start playing a bigger role in changing tobacco farmers’ attitude and getting them to grow other cash crops.