Excise Tax Hiked on Tobacco in Indonesia

JAKARTA, KOMPAS.com – The price of cigarettes in Indonesia went up Monday following the increase of the excise tax on tobacco products by 12.5 percent.

The new cigarette tax rate is mentioned in the Finance Ministerial Regulation No. 198/PMK 010/2020 on the excise tax on tobacco products as the government aims to earn 173.78 trillion rupiahs ($12.3 billion) from the cigarette excise duty this year.

Finance Minister Sri Mulyani Indrawati had previously said that the government needed to consider business sustainability which would affect the industry that employs many workers and farmers during the Covid-19 pandemic.

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However, it is necessary to increase the tariff to reduce the purchasing power of the people for cigarettes, which aims to maintain the health aspect of the people.

The medium-term national development plan (RPJMN 2020-2024) has set a target of reducing the prevalence rate in teenagers aged 10-18 from 9.1 percent to 8.7 percent by 2024.

The increase in the excise duty also takes into account the fate of about 158,000 workers in cigarette factories. For this reason, the government has not increased the tariff for the hand-rolled clove cigarette industry.

“It means that the increase is 0 percent for the hand-rolled clove cigarette industry, which employs the highest number of workers,” Sri Mulyani said.

The increase in cigarette prices is also closely related to the sustainability of the industry and its 526,000 tobacco farmers.

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To maintain balance, the government has decided that the increase in the excise tax on tobacco products would not reach 23 percent as it happened before.

She said that last year when the excise duty went up, the number of illegal cigarettes was also high, which stood at 4.9 percent. Meanwhile, the Ministry of Finance wanted to keep the percentage of illegal cigarettes at no more than three percent.

The details of the increase in excise tax for each category of tobacco products are as follows:

White Cigarettes (SPM)

1. White cigarette category I: 18.4 percent
2. White cigarette category IIA: 16.5 percent
3. White cigarette category IIB: 18.1 percent