Indonesia all set to hike cigarette excise in 2022

A tobacco seller in Parakan smokes a kretek cigarette in his warehouse. - JP

JAKARTA (The Jakarta Post/Asia News Network): The Finance Ministry is set to raise cigarette excises by up to 12 per cent next year to increase state revenue and bring down smoking, especially among children.

The ministry said on Monday (Dec 13) it would raise excises by an average of 12 per cent in 2022 from this year for machine-made clove cigarettes (SKM) and white cigarettes (SPM).

For hand-rolled cigarettes (SKT), which are produced through labour-intensive processes, the government will cap the hike at 4.5 per cent.

“Excise tax is an instrument to control [consumption] in line with the excise tax law,” Finance Minister Sri Mulyani Indrawati said in a press briefing on Monday.

The government has been raising tobacco excises every year since 2014 as part of its efforts to reduce smoking among children and teens between 10 and 18 years old to 8.7 per cent by 2024. The excise was raised 12.5 per cent this year.

The latest increase is expected to bring down smoking prevalence to 8.83 per cent in 2022 from an estimated 9 per cent this year, according to Sri Mulyani.

The government also raised the price floor for cigarettes across all categories, resulting in much higher retail prices. The price floor for the SPM I category, for example, will be up by 12.01 per cent annually to Rp 40,100 (US$2.8) for a 20-cigarette pack in 2022.

For the top-selling brands of cigarettes, the retail price will be Rp 38,100 for a 20-pack, making it the third-highest in the region, after Singapore and Malaysia.

Sri Mulyani said the latest excise tax hike was estimated to lead to a 3 per cent fall in production to 310.4 million cigarettes in 2022 but still bring in Rp 193.5 trillion in state revenue, roughly 10 per cent of the total.

Anticipating the latest hike, the Cigarette Manufacturer Association (Gappri) – a tobacco lobby – sent a letter to President Joko "Jokowi" Widodo on Aug 9 asking the government not to raise the excise next year, reported.

Gappri chairman Henry Najoan said the tobacco industry had been hit hard in 2021 by the previous excise hike, falling cigarette consumption amid a waning purchasing power and rising competition from illegal cigarettes.

"Gappri expects production to decrease 15 per cent this year. This negative production trend will worsen the condition of the national tobacco industry and affect state revenue," he said.

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