The Excise Department is discussing the legality of prohibiting cigarette importers from setting their retail prices below the prices listed before Sept 16, 2017, the first day the new excise tax came into force.

The tax-collecting agency can potentially level the playing field after state-owned Thailand Tobacco Monopoly (TTM) cried foul, claiming that foreign cigarette importers are exploiting the new excise levy by cutting retail prices to pay a smaller tax burden.

"Normal market" wording, which is stated in Section 17 of the new Act 17, under Clause 2, could be interpreted as regular retail prices before Sept 16, 2017. If that is the case, cigarette importers are not permitted to slash retail prices to understate the tax bill, said an informed source at the Excise Department.

The source said the department could apply Section 17, Clause 3, which bars cigarette importers from trimming retail prices to a level below the sales price before the new law was enforced.

The prohibition not only helps the government maintain tax revenues but also prevents consumers, particularly young people, from easily accessing cigarettes, the source said.

Section 17 under Clause 3 gives authority to the department's director-general to announce the suggested retail price, which is used as a base to compute the excise tax, in the event that the used suggested retail price is found to be beyond the market mechanism or cannot be set.

However, the possibility of counteracting trade must be taken into account when any regulations are issued, the source said.

TTM recently said that the excise tax on cigarettes is taking a bite out of its operations, for which the company expects a 1.5-billion-baht loss this fiscal year. The impact from the excise tax structure will hit TTM harder once the single rate of 40% of the suggested retail price goes into effect for fiscal 2020, in contrast with the current rate of 20-40%. The new single rate will result in a further 4-5 billion baht in losses.

After the current tax structure was implemented, TTM's market share fell to 65.9% from 80%.

The current excise tax uses the suggested retail price to replace the ex-factory price and the cost, insurance and freight (CIF) values as the base for excise tax computation. The change was aimed at creating a fairer system for manufacturers and importers after some businesses were found to have exploited the CIF system to understate their tax bills.

With the change in excise tax structure, cigarettes are liable for tax both in terms of volume and value, regardless of price. The levy in terms of volume was raised to 1.20 baht per cigarette from 1.10, while the tax based on value was divided into two rates: 20% of suggested retail price for cigarettes priced below 60 baht per pack and 40% for those priced more than 60 baht. In two years, the excise tax for cigarette packs priced 60 baht or lower will be raised to 40% -- the same rate applied to packs priced above 60 baht.

Under the current tax structure, TTM has raised its retail prices across the board, bringing starting prices to 60 baht per pack, while imported cigarette makers cut their retail prices for some brands to reduce tax burdens on consumers and gain a larger market share.

In the meantime, a source at the cigarette importers circle said that cutting the retail prices of some brands to 60 baht a pack is seen as adjusting prices under the normal market mechanism to lower tax burden.

Should the Excise Department force cigarette importers to sell at the same prices as they were before Sept 16, 2017, they can resolve the problem by launching new brands, the source said, adding that the department, in this case, cannot force them.