VZCZCXRO8847
OO RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHBK #2387/01 2610915
ZNR UUUUU ZZH
O 180915Z SEP 09
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8322
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC IMMEDIATE
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEAWJL/DEPT OF JUSTICE WASHINGTON DC IMMEDIATE
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC IMMEDIATE
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS IMMEDIATE
RUEHCHI/AMCONSUL CHIANG MAI IMMEDIATE 7013
RUEHGV/USMISSION GENEVA IMMEDIATE 2162

UNCLAS SECTION 01 OF 03 BANGKOK 002387 
 
STATE FOR EAP/MLS, EEB/TPP 
STATE PASS TO USTR FOR BWEISEL, DBISBEE, BKLEIN, AND VBROWN 
COMMERCE FOR EAP/MAC/OKSA FOR JKELLY 
DHS FOR CBP, ICE 
GENEVA FOR USTR 
TREASURY FOR OASIA 
SINGAPORE FOR FINATT BLEIWEIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:N/A 
TAGS: ECON ETRD PINR PREL TH
SUBJECT: "CAUSE I'M THE TAX MAN": PROPOSED EXCISE TAX CHANGES 
DISTRESS AMERICAN COMPANIES 
 
REF: BANGKOK 2320 (DEPUTY FINANCE MINISTER ON CUSTOMS) 
 
BANGKOK 00002387  001.2 OF 003 
 
 
¶1. (SBU) SUMMARY: U.S. companies have long complained about the 
burden of Thailand's excise taxes, which are particularly high on 
automobiles, gasoline, beer, wine, and distilled spirits. In recent 
weeks, several U.S. companies have approached the Mission seeking 
our advocacy efforts with regards to proposed amendments to the 
already burdensome excise tax law regime. While the legislative 
amendments are still being contemplated at the working level within 
the Finance Ministry, business leaders are concerned that, should 
they eventually become law, the amendments could adversely affect 
imported goods. One of the amendments would give the Director 
General of the Excise Department the discretionary authority to 
determine the import value of a product, rather than relying on the 
Customs-determined value. Another amendment would alter the tax base 
calculation for imported goods from countries that have free trade 
agreements with Thailand. As with customs issues, U.S. companies are 
not alone in their complaints; Australian, Japanese, and other ASEAN 
companies are discussing how these proposed changes could negatively 
impact their businesses, too. The Mission has already raised 
concerns over excise taxes with high-ranking Thai government 
officials (reftel) to ensure progress made at Customs is not offset 
by these backward steps at Excise. We fully expect several American 
companies to raise this issue with Prime Minister Abhisit Vejjajiva 
during his visit to New York for the UN General Assembly. Abhisit 
will meet with U.S. business groups during three separate events on 
the margins of UNGA and the G-20 Summit. END SUMMARY. 
 
¶2. (SBU) COMMENT: With the Thai government's economic stimulus 
packages depleting the government's coffers, the Ministry of Finance 
may be looking for cash from its revenue-collecting agencies. While 
the Revenue Department struggles to increase personal income tax 
returns and the Customs Department collects fewer tariffs as 
Thailand's free trade agreements kick into full gear, the Excise 
Department is next in line to pony up to fill the treasury. 
Unfortunately, the Department is looking at measures that could 
adversely affect imported goods in particular -- giving 
domestically-produced goods a competitive advantage in the market. 
While customs reforms may be underway (reftel), companies are 
concerned that these excise measures could counter any positive 
gains made on customs and even negate some of the benefits of 
Thailand's trade agreements. 
 
"Don't Ask Me What I Want It For..." 
------------------------------------ 
 
¶3. (SBU) In response to rumored pressure from the Ministry of 
Finance to increase government revenues this year, the Excise 
Department has proposed amendments to Thailand's excise tax laws to 
give the Department more flexibility to increase its collections. Of 
particular concern to foreign companies is that amendments could 
result in discriminatory taxation of imported goods (therefore 
raising national treatment concerns). Some business representatives 
are concerned that the Ministry of Finance may attempt to fast-track 
these amendments over the next few months, since customs collections 
will decline with scheduled tariff reductions under the ASEAN Free 
Trade Agreement in January 2010. So far, the proposed amendments 
have not progressed beyond the Excise Department and would need to 
be approved by the Ministry of Finance and the Cabinet before 
Parliament could consider the legal changes. 
 
"...If You Don't Want to Pay Some More" 
--------------------------------------- 
 
¶4. The Excise Department currently collects taxes on more than 
twenty commodities and services, as required by five separate tax 
laws: the Excise Act, the Excise Tariff Act, the Liquor Act, the 
Tobacco Act, and the Playing Card Act. The recently proposed 
amendments would apply to all these laws uniformly; the only 
exception would be the Playing Card Act, which the Excise Department 
has proposed to repeal entirely. The following goods and services 
are currently subject to taxes under these laws: 
 
 - The Liquor Act: beer, wine and other fermented liquors; distilled 
spirits; ethyl alcohol 
 
BANGKOK 00002387  002.2 OF 003 
 
 
 
- The Tobacco Act: shredded tobacco; tobacco products (i.e., 
cigarettes, cigars, rolled tobacco, blended shredded tobacco, 
chewing tobacco) 
 
- The Playing Card Act: playing cards. 
 
- The Excise Tax Act and the Excise Tariff Act: petroleum and 
petroleum products; non-alcoholic beverages (i.e., soda); electrical 
appliances; lead crystal products; passenger cars and 
public-transport motor vehicles seating not more than 10 people; 
pick-up trucks; motorcycles; yachts; perfume and perfume products; 
wool carpets; batteries and cells; ozone depleting substances 
(CFCs); horse racing; golf courses; night clubs and discotheques; 
spa, sauna and massage services; cellular phone services; baseline 
services. 
 
¶5. (U) Under the current laws, excisable goods are taxed based on 
the price at which the goods enter the market. Thai domestic 
producers of excisable goods must pay taxes based on the "ex-factory 
price" of the product (the price of the product when it leaves the 
manufacturing facility). The "ex-factory price" is reported by the 
domestic producer, but determined and verified by the Excise 
Director-General. In the case of imported excisable goods, however, 
the Excise Department calculates the tax base as the CIF customs 
value (cost, insurance, freight) plus the import duties. Foreign 
companies that are subject to excise taxes have argued for many 
years that because the Customs Department's valuations are often 
inconsistent with WTO Customs Valuation Agreement, a higher excise 
tax burden is imposed on imported products but not to the similar 
domestically produced goods. 
 
"Should Five Percent Appear Too Small..." 
---------------------------------------- 
 
¶6. (SBU) U.S. businesses have expressed concerns to us about two 
specific provisions in the proposed excise tax amendments. One of 
the amendments would give the Director General of the Excise 
Department the discretionary authority to determine the value of an 
imported product, rather than relying on the Customs-determined 
value of the good. The amendment states: "...The Director General by 
approval of the Minister will be authorized to announce the product 
value used for tax base which is in accordance with the 
internationally certified method. And it shall be in accordance with 
the rules and regulations determined in the Ministerial Rules." 
 
¶7. (SBU) Currently, as noted above, the excise tax base is defined 
as the declared CIF Price, as verified by the Customs Department, 
plus the amount of import duty paid. The proposed amendment would 
give the Excise Director General discretion to reject the importer's 
CIF Price without rationale. The Customs Act already empowers the 
Customs Department Director General to review and verify an 
importer's CIF Price, using internationally-accepted customs 
valuation methodologies. Since both Excise and Customs are under the 
auspices of the Ministry of Finance, businesses have argued that 
introducing two standards for the valuation of the same imported 
product would be both unnecessary and confusing. The Joint Foreign 
Chambers of Commerce, the umbrella association of thirty foreign 
business groups, has also expressed concerns about WTO compliance of 
this proposed amendment, arguing that excise taxes should be applied 
equally to both imported and domestic goods. 
 
"...Be Thankful I Don't Take It All" 
------------------------------------ 
 
¶8. (U) A second amendment would change the method used to calculate 
the base value of imported excisable goods from countries that have 
free trade agreements with Thailand (i.e., ASEAN, Austrlia, Japan, 
China). The proposed amendment states: "Where the importer is 
exempted from or granted a reduction in the rate of import duties 
pursuant to the law governing investment promotion or to other laws 
or granted a reduction of the rate or exempted from the tax rate 
lower than the rate generally used in the collection [of tax] of all 
countries, such exempted or reduced import duties shall be included 
in the calculation of the values under paragraph one." 
 
BANGKOK 00002387  003.2 OF 003 
 
 
 
¶9. (SBU) According to several potentially-affected companies, the 
Excise Department could use the higher Most Favored Nation (MFN) 
duty rate when calculating the excise tax base rather than using the 
preferential trade agreement duty rate, resulting in a significantly 
higher excise tax burden on the companies. Several attorneys from 
these affected companies have also argued that this provision 
exacerbates violations of GATT Article III (2) which states 
countries should not apply internal taxes on imported goods in 
excess of those applied to the same type of domestic products. 
 
¶10. (SBU) While this change would not directly affect goods produced 
in the U.S., many major American firms export to Thailand from other 
countries to take advantage of benefits under existing free trade 
agreements. Ford and Philip Morris are particularly concerned, given 
their large manufacturing plants in the Philippines that export to 
Thailand. Australian firms have also been quick to review the 
amendments and explain their concerns in Canberra as well as to the 
Australian Embassy in Bangkok. Australian exports of excisable goods 
(wine, automobiles) have significantly increased since the 
implementation of the Thailand-Australia Free Trade Agreement 
(TAFTA) in 2005; these amendments, if interpreted the way business 
groups think they will be, could undo any gains of the reduced 
tariffs under TAFTA. 
 
¶11. (SBU) Some confusion persists over the exact interpretation of 
the amendment's language: "such exempted or reduced import duties 
shall be included in the calculation..." Several Excise Department 
officials have privately told Australian emboffs that this phrase 
means the lower, preferential duty rate will be used to calculate 
the tax base. However, officials from the Fiscal Policy Office have 
told them the opposite: that the intent of the amendment is to use 
the MFN rate. The business community clearly interprets this phrase 
to mean that the difference between the MFN rate and the 
preferential duty rate will be added back into the value of the good 
for the excise tax calculation. Regardless of the uncertainty, 
companies convincingly argue that the vagueness of the phrase leaves 
an opportunity for the Excise Department to use the MFN rate, rather 
that the preferential duty rate, in the calculation -- even if the 
amendment's language is not explicit. 
 
"Cause I'm the Tax Man" 
----------------------- 
 
¶12. (SBU) On September 8, the Cabinet approved a new slate of 
officials to lead the various Finance Ministry agencies, including 
the Excise Department. Areepong Bhoocha-oom, the current Director 
General of the State Enterprise Policy Office, will replace Sirinuj 
Pisalayabutr as the new Director General of Excise. Similarly to the 
newly appointed Director General at the Customs Department, Areepong 
is US educated: Bachelor's from Boston University; Master's in 
Finance from Marshall University; Doctorate in Finance from the 
University of Mississippi. He first joined the Ministry of Finance 
in 1988 and has spent his career working with the State Enterprise 
Policy Office. The Excise Department is overseen by Deputy Finance 
Minister Pruttichai Damrongrat. There are two Deputy Ministers at 
the Ministry of Finance; these positions have typically gone to 
coalition partners to secure the party's support for the Prime 
Minister. Pruttichai from the Puea Paendin Party oversees the Excise 
Department, while Pradit Phataraprasit oversees the Customs and 
Revenue Departments. 
 
¶13. (SBU) We plan to meet with both the new "Tax Man" Areepong and 
his boss, Pruttichai, after Areepong takes office on October 1. 
Business groups, including the American Chamber of Commerce and the 
Joint Foreign Chambers of Commerce, are also planning on how to 
tackle this issue once the new Director General takes over. The U.S. 
ASEAN Business Council already wrote to the Minister of Finance to 
express its members' concerns about these proposed legislative 
changes. The U.S. ASEAN Business Council also plans to raise this 
issue during Prime Minister Abhisit's visit to New York for the UN 
General Assembly. 
 
JOHN