Starting next year, every puff of a cigarette is going to feel like burning even more of those precious rupiah bills as cigarette prices are set to increase significantly on the back of the government raising excise tax on tobacco goods.
On Oct. 18, Finance Minister Sri Mulyani signed a ministerial regulation raising the excise on tobacco goods by an average of 21.55 percent, effective Jan. 1, 2020. Broken down, the new excise will stand at 23.29 percent for machine-rolled kretek (clove cigarettes), 29.95 percent for machine-rolled cigarettes and 12.84 percent for hand-rolled cigarettes.
Under current regulations, the figures stand at 10.9 percent for machine-rolled kretek, 13.5 percent on machine-rolled cigarettes and 7.3 percent on hand-rolled cigarettes.
The tobacco excise hike — the first since 2018 — was drafted in a bid to increase state revenue earnings from the commodity next year.
The Indonesian Community Tobacco Alliance (AMTI) says that tobacco producers now have no choice but to raise cigarette prices drastically as a result of the excise hike.
“Retail prices for cigarettes could be IDR30,000, IDR33,000 [per pack]. Or it could go as high as IDR35,000,” AMTI Chairman Budidoyo told CNBC Indonesia.
Currently, the average price for cigarettes is IDR17,000 per pack, though some premium brands cost upwards of IDR25,000.
Not all in the government are in agreement with the Finance Ministry’s tobacco excise hike. An official at the Trade Ministry warned that the hike increases the threat of unemployment in the tobacco industry.
Indonesia has some of the highest smoking rates in the world, with one major factor being the very low prices of cigarettes.
The Indonesian government has often justified the country’s lax tobacco control policies (which are considered among the weakest in the world) by arguing that stricter regulations would have a detrimental impact on the country’s poor tobacco farmers (though they rarely mention the impact on the country’s major tobacco companies, whose owners often sit atop lists of the country’s wealthiest individuals).
The government has also said that a decrease in demand for cigarettes would have a negative impact on the huge amount of revenue the government receives in the form of tobacco excise taxes. That’s another popular argument made by government officials in favor of keeping regulations lax, though one that is becoming increasingly hard to make after the country’s own Health Ministry argued that the long-term burden of treating tobacco-related illnesses on the country’s healthcare system far outweigh the short-term revenue.
