Counting Rupiah Lost in Cigarette Excise in Indonesia

3 August 2022


This webinar highlights the results of a study from SEATCA which found that large amounts of funds were eventually lost from state revenues due to repeated delays in the optimal excise policy.

Counting Rupiah Lost in Cigarette Excise in Indonesia

Webinar activity with the theme “Cigarette Excise in Indonesia: Counting Lost Rupiah” on Tuesday, August 3, 2022

KBR, Jakarta – Ahead of the determination of the annual excise tax policy, the National Tobacco Control Commission (Komnas PT) together with SEATCA (Southeast Tobacco Control Alliance) held a webinar “Cigarette Excise in Indonesia: Counting the Lost Rupiah” on Wednesday, August 3, 2022.

This webinar highlights the results of a study from SEATCA entitled: “The Lost Rupiah: A Study on the Losses of an Optimal Excise Delay in Indonesia” which projected losses in 2021. This study found that large amounts of funds were eventually lost from state revenues due to repeated delays. times to the optimal excise policy.

There are more than 65 million smokers in Indonesia, including children. Around 300 billion kretek cigarettes are produced and sold each year making Indonesia a lucrative market for the tobacco industry. Not to mention, tobacco control regulations are also still weak and the tobacco industry is seen as having an influence on policy making.

The complex tiered excise tax system benefits the tobacco industry because it gives smokers the opportunity to switch to cheaper products when cigarette prices rise but deprives the government of much-needed revenue. Indonesia’s multi-layered excise tariff system is unique in that there is no reason to justify multiple layers other than being created to benefit the tobacco industry. Simplification of excise tariffs as stated in the National Medium-Term Development Plan (RPJMN) 2020-2024 is very much needed, but the government seems to be full of considerations.

The cigarette industry continues to reap profits even in the midst of the Covid-19 pandemic. For example, Gudang Garam Tbk, (GGRM), recorded revenue of Rp 60.6 trillion, an increase of 12.9% year on year throughout the first semester of 2021 (Kontan, 2021). While the government needs a lot of funds for economic recovery, Indonesia actually loses rupiah in the form of not collecting revenues from the optimal excise tax on tobacco products.

In his keynote speech, Iyan Rubianto, Director of Technical and Excise Facilities, Ministry of Finance represented Prof. Suahasil Nazara, Deputy Minister of the Indonesian Ministry of Finance said, “The 2020-2024 RPJMN is focused on reducing the prevalence of smokers to excise policy reform and GERMAS for public health. To reduce the prevalence of smokers, the RPJMN targets to strengthen excise policies and simplify excise rates. Indonesia has implemented several improvements to its excise policy, ranging from changing the form of ad valorem excise to trying to simplify layers. We also support non-fiscal policies as a comprehensive roadmap, such as advertising bans, pictorial health warnings, etc.

It is important for the state to control cigarette consumption to prevent the impact of large negative externalities while at the same time finding income that can be reused for economic recovery as a result of smoking itself. Meanwhile, excise is still proven to be effective in reducing the prevalence of smokers in various countries in the world as a form of control over dangerous products.

The state must firmly collect high excise duties from the industry in an effort to hold them accountable as a dangerously addictive industry. This excise tax can be reused by the community, especially to overcome the problems it causes, including the utilization of the Tobacco Product Excise Revenue Sharing Fund (DBHCHT) to improve the welfare of tobacco farmers or industrial workers. It is also a momentum for the government to accelerate post-pandemic recovery.

Dr. Ulysses Dorotheo as Executive Director of SEATCA said in the opening of the webinar, “We hope this SEATCA study can convince policy makers and legislative bodies to immediately increase tobacco excise and simplify the layer of tobacco excise to one layer or the least possible. We also focus on public health, to achieve high revenue we must also direct it to the development of better public health. Excise policy is a win-win solution for fiscal and health.”

In his presentation, Dr. Anton Javier, FCTC Program Officer at SEATCA highlighted that “There is at least Rp 108.4 trillion lost due to non-optimal excise policies, up to 457,700 Indonesians who died due to smoking problems. If this layer of tobacco excise is progressively simplified, state revenues and the impact on public health conditions will certainly improve over time. Simplifying the excise layer by increasing the excise level to 25% from the baseline is our policy recommendation that the Indonesian government can take. ”

In line with Anton Javier, Faisal Basri, an economist, reaffirmed the importance of excise policy with an optimal calculation as a consumption control. According to him, “During the pandemic, we are affected by learning loss in the younger generation which will become Indonesia’s demographic bonus. It would be a pity if the increased state income was actually diverted to needs that are not human development through education and health even though cigarettes have damaged our golden generation.” Faisal added, in 2019, there were 52.8% of Indonesians in a condition of insecurity, if cigarette consumption is allowed to increase this can worry about the condition of the people in the poverty line.

As part of the stakeholder who compiles excise policies every year, Febri Pangestu as Policy Analyst of the Fiscal Policy Agency of the Ministry of Finance responded, “The Ministry of Finance continues to encourage simplification to date, but we must look at the unification of Indonesia with 630 industries, 538 of which are MSMEs. We also encourage that the overall tobacco control policy must be jointly promoted, we agree that the tobacco product excise policy must also be accompanied by other policies, such as the revision of PP 109. Efforts to control tobacco must indeed be carried out across sectors, not only fiscally but also non-fiscal.”

Anton’s explanation was strengthened by the tax expert from WHO, Dr. Anne Marie Perucic who dissects the strategy of the cigarette industry “Tobacco farmers, hand-rolled workers and cigarette factory workers apparently do not have a good enough reception, the government can accommodate programs that are beneficial for them to avoid the problem of industrial snares. In addition, one of the most cost-effective measures to control cigarette consumption is excise on tobacco products. The argument from illegal cigarettes and employment should not be an obstacle to an optimal excise tax policy because of the evidence in the field. In fact, illegal cigarettes and employment problems are not caused by excise duty, but problems that arise in the supply chain of the tobacco industry. When excise policy is implemented optimally,

On this occasion, Tuti Roosdiono, Member of Commission IX DPR RI was also present to express his appreciation for today’s study and dissemination by giving a note to the government, “The problem of tobacco control in Indonesia is indeed complicated, even from the FCTC it has not been signed. The solution that the government can also take is to allocate DBHCHT with credible agency management to be budgeted for health, education, and sports issues.”

Prof. Hasbullah Thabrany as the General Chairperson of the National Tobacco Control Commission concluded with several points of conclusion, “From several measures of tobacco control policies, excise is an instrument that the tobacco industry has most strongly rejected. This clearly shows that we need to implement a strict excise policy for the industry. In many countries, high excise taxes have proven to have no direct impact on mass layoffs or sudden collapse of tobacco companies. In fact, the Indonesian government can take the momentum to achieve high state revenues as well as a significant reduction in the prevalence of smokers.”