Thailand weighs fuel tax cuts as global oil surge tests fiscal limits

Thailand is considering cutting fuel excise taxes to ease rising living costs as global oil prices surge, but the move is raising concerns over long-term fiscal stability and government revenue losses.

The proposal follows similar actions by other countries, with Vietnam and Australia already implementing fuel tax reductions to cushion the impact of soaring energy prices on households and businesses.

In Thailand, the Cabinet in a special meeting on March 26, 2026 approved in principle a plan for the Finance Ministry to study reductions in fuel excise taxes, aimed at lowering retail prices and easing pressure on the Oil Fuel Fund.

Officials said the Excise Department has completed modelling various tax reduction scenarios and is preparing to submit policy options for consideration.

At present, diesel excise tax stands at 7.44 baht per litre, while petrol taxes range between 5.85 and 7.50 baht per litre, depending on biofuel blends.

Any reduction would have a direct impact on state revenue. A 1-baht-per-litre tax cut would reduce government income by around 2 billion baht per month for diesel and 800 million baht for petrol. If both fuels are cut simultaneously, total losses would reach approximately 2.8 billion baht per month.

Three key scenarios have been outlined:

1. A 3-baht-per-litre cut for both petrol and diesel would cost the state around 8.4 billion baht per month, or 6 billion baht if applied to diesel alone
2. A 5-baht-per-litre cut — similar to measures used during the Russia–Ukraine war — would result in revenue losses of up to 14 billion baht per month, or 10 billion baht if limited to diesel
3. A 7-baht-per-litre cut for diesel alone would also lead to losses of about 14 billion baht per month

A Finance Ministry source warned that fuel tax cuts could undermine long-term fiscal stability, as lost tax revenue cannot be recovered later — unlike the Oil Fuel Fund mechanism, which allows the government to recoup subsidies when global oil prices decline.

Thailand has previously used tax cuts during the 2022 energy crisis, resulting in annual revenue losses of more than 150–160 billion baht.

Concerns are also growing that such measures could affect the country’s credit rating, as global rating agencies are closely monitoring Thailand’s fiscal discipline amid rising public debt levels.

Phiphat Ratchakitprakarn has opposed the tax cut proposal, warning that it would immediately erode government revenue and increase borrowing needs, potentially pushing public debt closer to its ceiling.

He argued that relying on borrowing to offset lost revenue could weaken fiscal credibility and impact future budget planning, particularly for public investment.

Instead, he suggested that the government should continue using the Oil Fuel Fund as a more flexible tool, as it allows authorities to manage price volatility and recover funds when global oil markets stabilise.

The fund has previously recorded deficits of up to 120–130 billion baht but was able to return to surplus when oil prices eased.

Meanwhile, the Energy Ministry said global oil prices remain elevated, with Dubai crude reaching around US$120 per barrel — up 72% from pre-conflict levels — while diesel prices in Singapore have exceeded US$200 per barrel and peaked near US$240, roughly double normal levels.

The Oil Fuel Fund is currently in deficit by around 42 billion baht and is expected to face further pressure. The government is considering additional measures, including borrowing to support the fund’s liquidity and partial tax adjustments.

Internationally, Australia has announced a temporary three-month reduction in fuel excise tax, cutting rates by half from April 1, 2026. The move is expected to lower petrol and diesel prices by 26.3 Australian cents per litre, but will cost the government around 2.55 billion Australian dollars in lost revenue.

Prime Minister Anthony Albanese said the measure is intended to ease pressure on households and businesses, while additional relief includes suspending road user charges for heavy diesel vehicles for three months.

Vietnam has also taken aggressive steps by removing several taxes on petrol, diesel and aviation fuel, including environmental tax, VAT and excise tax. The move led to an immediate 19% drop in fuel prices.

However, Vietnam’s Finance Ministry estimates the policy will reduce state revenue by around 7.2 trillion dong (approximately 9 billion baht) per month.

Authorities described the measure as urgent and effective in stabilising domestic energy markets and supporting economic activity, particularly in production and private-sector operations.

Vietnam remains a net oil importer, with crude imports of 14.2 million tonnes in 2025, around 80% sourced from Kuwait, while exporting about 2.5 million tonnes, mainly to Australia and Thailand.

The debate in Thailand highlights the growing policy dilemma facing governments worldwide — balancing the need to shield consumers from rising energy costs against the risk of undermining fiscal sustainability.