Oil price support cost state 178.1bn baht in lost tax
Thailand lost more than 178.1 billion baht in diesel tax revenue from 2022 to 2024 as the state moved to cushion oil prices during global crises
The renewed outbreak of war in the Middle East is bringing fresh uncertainty and triggering a new wave of concern for the global economy, amid mounting geopolitical tensions involving the United States, Israel and Iran, which have now led to the closure of the Strait of Hormuz.
The situation has had a direct impact on crude oil transport routes, particularly for countries such as Thailand that rely heavily on imports. This risk factor is set to push up global crude oil prices and is likely to create ripple effects through inflation, business production costs, household expenses and the overall cost of living.
Krungthep Turakij looks back at how the Thai government responded to a previous crisis by using cuts to diesel excise tax to help support domestic retail prices and soften the blow. However, such measures may now be regarded as a last resort, as past experience shows they came at an enormous cost in the form of more than 100 billion baht in lost state revenue.
War sent global crude prices soaring
Looking back to early 2022, the Russia-Ukraine conflict sent shockwaves through global energy security, driving crude oil prices sharply higher and causing severe volatility. In February 2022, Dubai and West Texas crude prices climbed to around US$90 a barrel.
The situation worsened between May and July 2022, when Dubai crude rose to an average of US$104 a barrel, while West Texas crude surged to between US$101 and US$105 a barrel.
Although prices eased somewhat towards the end of 2022, they climbed again to between US$89 and US$93 a barrel in September 2023. The pressure forced the Thai government to accelerate the use of the Oil Fuel Fund, alongside tax measures, to cap diesel prices and prevent wider economic fallout.
Cabinet resolutions cut diesel tax to support prices
As the Oil Fuel Fund came under mounting strain and approached its limit, the Cabinet was forced to deploy diesel excise tax cuts to curb pump prices. Between 2022 and 2023, the Cabinet approved eight separate resolutions:
- Cabinet resolution, February 15, 2022: the first diesel tax cut of 3 baht per litre, from 6.44 baht, for three months. The state lost 17.1 billion baht in revenue.
- Cabinet resolution, May 17, 2022: after crude prices climbed above US$100 a barrel, the tax cut was increased to 5 baht per litre for two months. The state lost 20 billion baht.
- Cabinet resolution, July 12, 2022: the 5-baht-per-litre cut was extended for another two months. The state lost 20 billion baht.
- Cabinet resolution, September 13, 2022: the 5-baht-per-litre cut was extended for a further two months. The state lost 20 billion baht.
- Cabinet resolution, November 15, 2022: the 5-baht-per-litre cut was again extended for two months. The state lost 20 billion baht.
- Cabinet resolution, January 17, 2023: the 5-baht-per-litre cut was extended for four more months. The state lost 40 billion baht.
- Cabinet resolution, March 14, 2023: the 5-baht-per-litre cut was extended for another two months, before the measure ended as the government entered caretaker status. The state lost 20 billion baht.
- Cabinet resolution, September 13, 2023: under the new government led by Srettha Thavisin, the diesel tax was cut again by 2.50 baht per litre for three months, from September to December 2023. The state lost 15 billion baht.
The government’s energy price subsidy policy, implemented through excise tax cuts from 2022 to 2023, together with a ninth reduction of 1 baht per litre in early 2024, resulted in a total loss of 178.1 billion baht in tax revenue.
In addition, the Oil Fuel Fund was pushed deep into the red. By mid-2022, its debt burden had peaked at more than 130 billion baht, forcing the government to approve borrowing of up to 150 billion baht to support its liquidity, with the Finance Ministry acting as guarantor.
However, the current Iran war, centred in one of the world’s most important energy-exporting regions, could trigger an energy crisis even larger than that caused by the war in Ukraine. It now poses a crucial test of how the Thai government will manage a fresh round of oil price shocks stemming from the Middle East.
