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The Effectiveness and Rightfulness of Tax on Sugary Beverages in Thailand

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The Effectiveness and Rightfulness of Tax on Sugary Beverages in Thailand The Effectiveness and Rightfulness of Tax on Sugary Beverages in Thailand Master Thesis International Business Law Author: Panuwud Wongcheen SNR: U736075 Master: International Business Law (LLM) Year: 2018-2019 Supervisor: Paul Obmina Abstract In 2017, Thailand started to imposed tax on sugary beverages from the concerns of the rise of obesity among adults, children, and monks. While other jurisdictions usually set the tax by volume-based, Thailand sets the tax based on sugar content in each beverage ranging approximately from 1-10percent of the price of the product. The tax is only imposed on the natural sugar-sweetened products; thus, artificial sweeteners can be used without any tax imposing on. Dairy products such as fresh milk, flavored milk, and yogurt drinks are exempted. The sweeter the product is, the more tax it has to pay. However, the weaknesses in achieving the obesity reduction goal still exist. It is true that when the consumer would avoid sweeter beverages and swap to the less sweet product. However, when the consumer drinks two bottles of less sweet products, the sugar which he receives could be more than one bottle sweet product. The consumer should consume less sugary beverages due to the higher price regarding the rational choice theory and other economic theories. However, there has been no evidence reporting the successfulness in any jurisdictions in the long term. This thesis will analyze what are the commonalities between each jurisdiction, the mutual overlook aspects and suggest the improvements that it should take into consideration. The rightfulness of tax is likely to be not. When the government enacts regulations, which impact rights and liberties of the people with the police power, it needs to comply with provisions under the constitution. However, sugar tax was made by the taxation power, which was delegated to the excise department and did not need to follow the provisions of police power under the constitution. It has complied with all provisions and is considered legal under Thai law. However, according to the tax principle, this tax seems to discriminating categories of products arbitrarily while neglecting the fact that other products besides sugary beverages can also cause obesity and require tax imposition. It is also made in the ineffective level and show fewer effects on some parties who have close relationships with the political party. Lastly, it respects freedom of choice and is set at a low rate for not causing the loss of purchase power and oppressing the poor. The rate is too low for efficient performance; thus, might not show make it reach the expected public interest goal. When it cannot satisfy all of the tax principle pillars while meets all legal provisions, it might be considered legal but not rightful under the tax principle. Keywords: Obesity, Tax, Pigouvian tax, effectiveness, Sugary beverages, Externalities 2 Table of Contents Abstract ................................................................................................................................................................ 2 Chapter 1: Introduction........................................................................................................................................ 5 1.1 Background and problems .................................................................................................................. 5 1.2 Research Question ............................................................................................................................... 7 1.3 Objective of the Study ......................................................................................................................... 8 1.4 Methodology .............................................................................................................................................. 8 1.5 Major findings ............................................................................................................................................ 8 Chapter 2: OBESITY AND ITS PROBLEMS ........................................................................................................... 10 2.1. Obesity .................................................................................................................................................... 10 2.2.1 Obesity definition and health impacts ............................................................................................. 10 2.2.2 Causes of obesity .............................................................................................................................. 13 2.2.3 Current situation of obesity in Thailand and worldwide................................................................. 18 2.2. Obesity and economic impacts............................................................................................................... 19 CHAPTER 3: TAX FOR BEHAVIORS CONTROL IN THEORIES ............................................................................... 21 3.1 Freedom of choice and Rationale of choice theory ................................................................................ 21 3.2 Market failure and intervention for public interest ............................................................................... 23 3.3 Pigouvian tax, solution of market failure ................................................................................................ 25 3.4 Optimally effective regulation and policy in theory ............................................................................... 29 3.5 Excise tax Approach ................................................................................................................................. 31 3.6 Price Elasticity of Demand (PED) ............................................................................................................. 32 3.6 Previous failure of Interventions ............................................................................................................. 36 3.6.1 Alcohol .............................................................................................................................................. 36 3.6.2 Tobacco ............................................................................................................................................. 37 CHAPTER 4: ANALYSIS OF THE REGULATION AND THEIR EFFECTIVENESS ....................................................... 39 4.1 REGULATORY FRAMEWORKS WORLDWIDE ............................................................................................ 39 4.2.1 Mexico ............................................................................................................................................... 43 4.2.2 Norway .............................................................................................................................................. 46 4.2.3 Hungary ............................................................................................................................................. 49 4.3 Thailand in comparison with other jurisdictions .................................................................................... 52 4.4 SUMMARY ................................................................................................................................................ 59 CHAPTER 5: Challenges in the Implementation of the Sugar tax ..................................................................... 65 5.1 Inaccurate and unfair focusing .......................................................................................................... 65 5.2 Practicality ......................................................................................................................................... 67 3 5.3 Cost for substitutes ........................................................................................................................... 69 5.4 Regressivity ........................................................................................................................................ 71 5.5 Political lobbying ............................................................................................................................... 72 5.6 Uncontrolled pass-through tax and cartels ...................................................................................... 74 Chapter 6 Rightfulness of the sugar tax ............................................................................................................ 75 6.1 Police power and Taxation ...................................................................................................................... 75 6.1.1 Police power ..................................................................................................................................... 75 6.1.2 Exercises of police power ................................................................................................................. 81 6.2 Taxation and its limitation ....................................................................................................................... 88 6.2.1 Taxation power and its limitation .................................................................................................... 88 6.2.2 Legality of Sugar Tax ......................................................................................................................... 89 6.3 Paternalism and taxation........................................................................................................................
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