Excise tax shakes up Phuket wine sales


PHUKET: The new regime of excise tax on alcohol introduced last year has hit the island with blank shelf space in stores evidencing specific product lines of wines drying up as the market recalibrates demand for wine products under the new tax-affected prices.

The current effects felt in the retail sector are most likely to be fruit wines, explains Bart Duijkers, Area Director – South for major distributor Bangkok Beer and Beverages (BB&B).

“The wine in question is categorised as ‘fruit wine’, which by law is normal wine mixed with at least 15% fruit juice, mainly apple, pineapple, passionfruit juice and so on,” he explains.

“Up until September last year this category enjoyed very low excise taxes, which are levied on many products including wines. Due to this ‘fruit wine’ category becoming very popular the government decided to raise the tax on this category which resulted in approximately 30% price increases.

“Most importers knew this was happening and decided to import a lot of stock before the tax increase. Once that stock runs out, new stock is imported at the higher tax rate,” Mr Duijkers adds.

Further, the same effect is being seen where prices for the same product are on average B100 higher in Phuket than in other expat and tourist enclaves such as Chiang Mai and Samui.

“There is no difference in tax treatment between provinces, so the only reason why Samui may have stock and Phuket doesn’t is because wine sales are much stronger in Phuket and thus stock runs out faster,” Mr Duijkers explains.

Identifying fruit wines shelved among genuine wines in stores has often been perceived as a tricky practice, though Mr Duijkers notes that it is a lot easier than most people think.

“Wines which are in the fruit wine category are always marked ’fruit wine’ on the back label but most labels by law cannot mention the grape variety, such as pinot noir and so on, so usually the label simply refers to wine as a ‘dry white’ or ‘bold red’ or similar terms,” he says.

In short, the new form of excise tax has levelled the playing field among alcohol products. The tax instituted with effect from Sept 16 last year saw all wines, and other alcohol products, taxed on percentage volume of pure alcohol, not the prices charged in the market. (See Excise Dept schedule here; full Excise Act here.)

“A general rule of thumb working example is that the tax is B1,500 per one litre of pure alcohol, and vendors just work out the percentage of alcohol in the unit being sold, say one bottle of wine, from that,” Mr Duijkers explains.

“In general, wine went up about 10-15% in price, and the end net effect has been that the playing field became level, which was good for us (BB&B).

“Under the new tax, in our portfolio 60% of the wines became cheaper. We actually improved our competitiveness because a lot of our competitors’ prices went up,” he adds.

With the focus on the alcohol content, the tax has even resulted in locally produced Thai wines now being sold not much cheaper than imported wine. The answer for this is simple: “Because the import tax is not the bulk of the tax. It’s the excise tax,” Mr Duijkers explains.

The tax change in 2017 also moved the tax point and vendors must prove five points in the market where the price is being supplied with only 5-10% variance, he adds.

Where once that was a loophole for vendors to “cook the books”, it is no longer an option without risking genuine legal action and fines by authorities.

“Now they actually check,” Mr Duijkers says. “They now come and ask to see invoices and they will check with other venues in the area and compare the prices for identical products to make sure the difference is not that great.

“If there is a big difference, people can get into quite a bit of trouble… They are tightening up the regulations,” he notes.

What Phuket is currently experiencing may spell the end of fruit wines as a popular consumer choice, and eventually may see wine producers remove the product from the Thai market entirely, but to Mr Duijkers that may not be a bad thing.

“Fruit wine suited a certain price point but not much more. It was never a true wine and it was created only to serve a specific need in the market,” he says.

Further, the move to even produce fruit wines under the new excise tax may not even prove profitable when competing against genuine wines, even import wines.

“Thailand also has agreements with many countries on a range of products, like coffee as well as wine, where there is no import duty,” Mr Duijkers notes.

“For wine from Australia and even Chile, the import duty is zero, and wine from these regions now have a price perception advantage over locally made wines.”

Meanwhile, for now, distributors are continuing to provide fruit wines, waiting to see if the market will support them – or if the product line will need to be dropped entirely.

“BB&B also brings in fruit wines under the label Belleville and Sol de Chile. We still have stock of Sol de Chile under old prices – for now,” Mr Duijkers notes.

Courtesy: Published at The Phuket News on June 10, 2018 by Chris Husted

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