Indonesian Government to Raise Cigarette Excise Duties
Published on October 7th, 2011 09:48
The government will raise the excise duties for smoking products by approximately 12.2% in the future year as it plans to increase profit from the tobacco industry and give deterrents to consumers, according to the Finance Ministry.
In the 2012 state budget draft, the government established full excise revenue at $8.4 billion, a 6.3% increase from this year’s revised budget of $7.9 billion. Tobacco products will contribute to $8 billion, a big part of the excise tax in the in next year’s draft budget. However the government will permit cigarette manufacturers to produce 268.4 billion sticks in the future year, despite a long range plan known as the Tobacco Industry Roadmap which will reduce production to 260 billion cigarettes per year by 2015.
For instance Indonesian tobacco companies produced 252 billion cigarettes in 2010, and the customs officials forecast a similar amount this year.
Tobacco excise duties raised by this year by about 5%. Starting from 2009 the government set excise rate per piece instead of tacking into account percentage of prices per pack. However the rate varies depending on cigarette style. The more up-to-date equipment and the bigger production size, the higher the rate respectively. The given plan should be approved by the House of Representatives. If it happens that it will be adopted, it will come into effect on January 1, 2012.
The government would limit the excise rate gap among different styles of cigarette, a policy planned to assure deterrents for tobacco companies in order to make use of lower-priced volume-based excise rate. According to Nusron Wahid, the legislator from the Golkar party, who is against higher taxes, “the tobacco industry continues to be an important one and should be treated as such. Why we should introduce some restrictions of production to the tobacco industry? We may increase production instead and export it. That for sure would raise our customs profit,” stated Nusron, who represents Indonesia’s third-biggest producer of clove cigarettes.
Experts have sated that the raised tariff would not greatly affect the industry as tobacco companies would mostly switch to the increased cost to costumers. “It is a well-known fact that, sales keep growing, despite the price increase, as demands is still significant,” stated Achmad Nurcahyadi, an analyst at BNI Securities.
Anti-smoking experts stated that the central government has done many things in order to discourage smoker from this habit in a country where the average package of smokes costs about $1. Jakarta’s municipal government has already prohibited smoking in some regions of the capital. There were introduced tough regulations on how tobacco companies can advertise their products on television, radio and in print media.
Tobacco industry in Indonesia is the biggest manufacturing sector and employs millions of people.
