Thailand's new Excise Tax Act will have a greater impact on local beer makers than on domestic spirits producers because the beer market is more competitive and demand is price-sensitive, Fitch Ratings says.
Producers of non-alcoholic drinks will also be hit by the imposition of a new tax on sugar content in drinks.
Effective from Sept 16, 2017, the tax per can of beer will be 0.50 baht higher, and per bottle of beer it will be 2.66 baht more. For higher-priced beer, the tax will decrease by between 0.99 baht and two baht.
White spirits will be taxed an additional 0.84-3.49 baht per bottle. For other kinds of locally made spirits, the additional tax will be eight baht per bottle for 28% alcohol content and 30 baht for 40% alcohol content.
Fitch expects pressure on beer makers because their ability to pass on tax cost to consumers and maintain their profit margins largely depends on the magnitude of the tax increase and consumers' purchasing power to absorb higher prices.
Other than prices, beer demand is also sensitive to economic conditions and the festive mood in the country.
Domestic beer sales volume has been volatile over the past 10 years, including a drop of 9% in 2009 amid political protests and an excise tax increase, a 14% decline in 2011 due to severe flooding, and a 5% fall in 2013 after a restructuring of the excise tax, according to figures from the Office of Industrial Economics.
Local spirits makers are likely to see a minimal impact on sales from the new tax structure, despite a higher incremental tax due to the higher alcohol content of spirits.
Thailand's local spirits market has few players, with the largest, Thai Beverage Plc, occupying a 90% market share by sales volume. Limited competition, together with inelastic demand for spirits, should support the operating performance of spirits makers over the medium term. Producers with a wide range of products in terms of alcohol content or price would be able to provide customers with a variety to match their purchasing power.
Spirits sales volume, represented by the sales volume of the dominant player, has been fairly stable despite several tax rises, with a compound annual growth rate (CAGR) of 2% a year over 2006-16.
The 10-year CAGR of net revenue (excluding excise tax) from spirits has been higher, 6% a year over the same period, reflecting producer ability to raise prices without hurting demand.
The non-alcoholic drinks market's high degree of product variety, product substitution and competition limit producers' ability to pass on cost increases to consumers. The impact of the additional levy on those producers should be high once the tax scheme is fully in place, likely in late 2019.
