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27 May 2021

Econ Digest

Sweetness remains, Thailand’s sugar tax hike on hold this October


         Competition in the beverage industry has continued to intensify recently, as evidenced by the launch of new products and the entry of new operators, which have affected the overhead costs of business. In addition, the global uncertainty surrounding the COVID-19 situation and the new wave of COVID-19 outbreak in Thailand in April 2021, which has affected the yet-to-recover purchasing power and led to a reduction in outdoor activities, has further exacerbated operators’ difficulties in increasing sales this year. Given this, KResearch predicts that the market value of the entire beverage industry will fail to recover for the second consecutive year and is expected to be around THB449 billion in 2021, or a slight contraction of 0.4%YoY.

         Operators will continue to be taxed at the same rate this year, as the excise tax on sugary beverages in the third phase due to become effective on October 1, 2021 has been postponed by one year to October 1, 2022 while the fourth phase has been postponed to become effective on October 1, 2024. This move may not help spur a return to growth in the beverage market value in 2021, since operators have already adjusted to adapt to the new tax rates, but may somewhat alleviate the cost burden on operators that must cope with declining sales during this period, especially for soft drinks and fruit juices with high sugar/sweetener content. However, operators with sufficient strength may take advantage of the delayed tax hike to adjust product formulas and develop production processes to cope with the next phase of excise tax on sugary drinks that will be raised at a stepped tax rate to encourage continuous adaption.

          Although the government is postponing the tax hike, businesses still face immediate challenges that are prompting them to accelerate product development in order to meet consumer demand and increase sales, including pressure on purchasing power. This is partly reflected in the 2017 survey of the National Statistical Office of Thailand, which found that most Thai people tended to reduce their frequency of consuming non-alcoholic beverages (excluding drinking water) from 2013, including a trend in consumer behavior towards health awareness, choosing to consume health-promoting drinks, low-sugar drinks, low-energy drinks, etc.

        Going forward, the beverage industry must also monitor other tax developments that may affect production costs and future product development for health benefits, such as a 0% tax on beer, a tax on new beverages like hemp-based drinks, or a fat tax such as those that have been levied abroad. Environmental issues such as the use of environmentally friendly packaging and the development of a post-consumer recycling/reduction system for packaging waste must be also considered in light of consumer awareness of sustainability, in order to expand the market and improve long-term competitiveness.

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