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Indonesian Increases Tobacco Taxes from 56 % to 65 %

Beginning January 1, 2015, the government will legally increase tobacco excise from 56 % to 65 % as part of actions to dissuade smoking.

Indonesia frequently counts as among countries with the greatest smoking rates around the world, with more than 62 million or 1/4 of its population being cigarette users.

Generally, people light up a smaller amount of cigarettes when they are more costly. The World Health Organization has proposed a cigarette excise of about 70 %, which would increase prices to about Rp 18,000 per package.

Even so, based on Abdillah Ahsan, senior researcher and vice-director at Demographic Institute of the University of Indonesia (UI) in Jakarta, the most suitable price to truly dissuade cigarette consumption is Rp 50,000 per package, even though still cheaper than prices in Singapore or Australia.

Increasing tobacco excise is the most money saving smoking-cessation step.

At the moment, Indonesians light up about 10 cigarettes per day. Spending less than Rp 64.4 per person annually would reduce by one half-tobacco consumption, cut the number of smokers by more than 7 million.

The tobacco industry in Indonesia has been successful in broadening its market by almost 9 % per year and built Indonesia the fourth major cigarette market worldwide in 2013. We can forecast that this boost in tobacco excise would get more pushback from the industry.
The industry has attempted to advocate against this tax boost in the name of tobacco growers. Only below than 1/3 of growers are linked to the tobacco, sector. It is projected that 86,820 jobs might be lost resulting from this boost in tobacco tax.

The inflexible demand for cigarettes indicates that the boost in excise would provide more money to the government. Triasih Djutaharta, another senior specialist from UI’s Demographic Institute, considers that the government would accumulate extra profits of Rp 20 trillion from this regulation.

In spite of the good achievements of growing tobacco excise, at the moment the tax rate is tiered by the volume of cigarette production. A company making over 2 million cigarettes by machine (SKM) is taxed Rp 415 per gram.

On the other hand, exactly the same company can split into multiple smaller sized companies to get a tax rate of around Rp 305 per gram, preventing over 26 % of the tax, weakening the efficiency of the tax-boost involvement.

By turning to an even tax rate, the Philippines is believed to decrease up to 30 % of both its present and upcoming smokers, and obtain additional $1.2 billion to state profit.

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