Oil tax cut last resort as Finance fears revenue hit

Amid the Middle East conflict, which has sent global oil prices sharply higher and increased volatility in energy markets, Thailand is preparing measures to cushion the impact of rising energy costs on households and businesses.

However, a source at the Finance Ministry said that cutting excise tax on oil would be used only as a last resort. For now, the government intends to rely first on the Oil Fuel Fund as its main mechanism for dealing with the crisis.

Behind the ministry’s cautious stance are two main concerns over economic stability.

The first is Thailand’s limited fiscal space. Public debt has accumulated to around 66% of GDP, leaving only about 4 percentage points before reaching the fiscal discipline ceiling of 70%. At the same time, the Oil Fuel Fund is under growing strain from diesel subsidies, with officials warning that continued support could quickly deepen the fund’s deficit.

Although the fund still has some borrowing headroom, any further emergency borrowing guaranteed by the Finance Ministry would be counted immediately as public debt, raising the risk of pushing debt levels close to, or even beyond, the ceiling. This is one reason the ministry is reluctant to open a new front by also cutting fuel taxes.

The second concern is the direct impact on state revenue. Oil and petroleum product taxes are a major source of income for the Excise Department. For fiscal 2026, the department has set a revenue target of 578.2 billion baht, with oil-related revenue accounting for a substantial share of that figure.

The Finance Ministry is also drawing lessons from the Russia-Ukraine war. Between 2022 and 2024, the government approved nine successive diesel excise tax cuts, resulting in forgone revenue of more than 178.1 billion baht, while the Oil Fuel Fund also had to shoulder a heavy burden and borrow heavily to maintain liquidity.

Because of those pressures, the government’s current approach is to reduce the burden on consumers without relying solely on fresh borrowing or tax reductions.

Among the parallel measures now being considered is an adjustment to the diesel pricing structure. After the current 15-day price cap ends, the government may have to gradually raise the retail diesel price from 29.94 baht per litre to around 31.94 baht per litre in order to ease pressure on the Oil Fuel Fund.

The government is also pressing ahead with stricter energy-saving measures in the public sector. These include setting air-conditioners at 26-27C, reducing unnecessary electricity use in office buildings, encouraging stair use instead of lifts for short distances, cutting paper use, promoting online meetings and allowing work-from-home arrangements where appropriate.

Fuel-saving measures are also being emphasised, including regular vehicle maintenance, sensible driving speeds, car-pooling and better journey planning to reduce fuel consumption. If the situation worsens, additional mandatory measures may be introduced, such as dimming illuminated advertising signs after 10 pm and limiting petrol station operating hours, except on major highways.

The key challenge in the period ahead will be whether the government can balance the need to ease the cost of living with the need to preserve fiscal stability under increasingly tight constraints.