• Ad valorem;
  • alcoholic beverages;
  • excise tax;
  • specific;
  • tax rate tipping point;
  • Thailand

Sornpaisarn et al. [1] have reviewed a number of past studies concerning alcohol taxation, and concluded that alcohol consumption on an adult per capita basis increases with the level of income. The lowest-income countries (LIC) tend to consume the least amount of alcohol on an adult per capita basis, which is lower than the rate in mid-income countries (MIC), and much lower than that in high-income countries (HIC). The authors have also shown a profound understanding of excise taxation on alcoholic beverages, especially in Thailand. Two popular methods of excise taxation for alcoholic beverages are mentioned: specific and ad valorem. Specific taxation is based on the volume of pure alcohol in an alcoholic beverage, and ad valorem taxation is a function of the price of an alcoholic beverage; however, each country has a choice as to which price will be used as a base for taxation. For Thailand, a ‘Two Chosen One (2C1)’ taxation has been applied, and ad valorem is a function of the ex-factory price, i.e. basic or factory price plus the excise tax itself [2]. This is called the ‘inclusive excise tax rate’. In this case, when it is stated that the rate is 60%, its exclusive rate is 0.6/(1 − 0.6) = 1.5, or 150%. Few people realize that 60% is not the exclusive rate; the real exclusive rate is 150%, which is much higher.

Under 2C1, the applied excise tax rate on a less expensive alcoholic beverage will be the specific rate, and that on a more expensive one will be the ad valorem rate. This is well demonstrated in the paper. The authors use an example to show that revenue from the specific tax of an inexpensive distilled spirit (105 THB) is higher than that of the ad valorem tax (58 THB). However, this is not always true if the specific rate is high enough. The example in the paper is based on the tax rate of whisky, which is 400 THB. If distilled spirit, which is taxed at a lower rate, is used in the example, i.e. 120 THB, the revenue from specific tax will be reduced to 33.60 THB. This is lower than that of ad valorem tax and, provided that a reported ex-factory price is not less than 67.20 THB, the ad valorem rate will be applied. Producers know this point well, and some have reported anomalous low factory prices for less tax payment [3]. Moreover, the calculation in Box 1 of Sornpaisarn et al.'s [1] paper shows that the tax revenue derived from the specific method is 115 THB, not 105 THB, as stated in the paper.

The conclusion that 2C1 generates a higher average tax rate and results in lower alcohol consumption compared individually to the specific tax or the ad valorem tax is not a surprise. Because 2C1 employs the rate that yields a higher tax revenue between specific tax and ad valorem tax, it will always yield a tax revenue not less than that of the two methods. This means implicitly a 2C1 tax rate that is comparably not less than both the specific rate and the ad valorem rate. As a consequence, the use of 2C1 leads to lower consumption of any alcoholic beverage as long as the alcoholic beverage is not a Giffen good.

The role of the ‘tax rate tipping point’ is important for 2C1. This is the price at which the tax rate to be applied switches between ad valorem tax and specific tax. If the price decreases from this point, the applied tax rate will change from the ad valorem tax to specific tax, and vice versa if the price rises. However, it should be noted that this ‘tax rate tipping point’ is not constant over time. In the long term, inflation will raise the nominal price of the product, increase the ad valorem tax revenue and reduce the real value of a specific rate. Thus, the specific rate will have less and less chance to be applied unless it is indexed to inflation.


  1. Top of page
  2. Declarations of interest
  3. References
  • 1
    Sornpaisarn B., Shield K. D., Rehm J. Alcohol taxation policy in Thailand: implications for other low- to middle-income countries. Addiction 2012; 107: 137284.
  • 2
    Sarntisart I. An Economic Analysis of Tobacco Control in Thailand. HNP Discussion Paper. Economics of Tobacco Control Paper no. 15. Washington, DC: International Bank for Reconstruction and Development/The World Bank. 2003.
  • 3
    World Health Organization (WHO). Tax Policies on Tobacco Products in Thailand: The Way Forward. New Delhi: Southeast Regional Office, WHO; 2011.