Tobacco excise hike deals a blow to cigarette makers

Satria Sambiijantoro and Linda Yulisman, The Jakarta Post

President Susilo Bambang Yudhoyono’s administration issued a regulation on Friday raising the tobacco excise, a move that should help the new government achieve its excise target of Rp 120.5 trillion (US$99.9 billion) in the 2015 state budget.

A new Finance Ministry Regulation (PMK) enacted Friday will increase the excise for tobacco-related goods by an average of 8.7 percent, effective beginning Jan. 1 2015, according to Finance Minister Chatib Basri.

Currently, the excise on hand-rolled clove cigarettes ranges between Rp 80 and Rp 275 ($0.02) per cigarette, while the excise on machine-rolled clove cigarettes ranges from Rp 245 to Rp 375.

The excise for mass-produced, machine-rolled clove cigarettes will be raised by 16.9 percent to Rp 355 per cigarette. The excise for mass-produced, hand-rolled clove cigarettes, meanwhile, will be raised by 5.4 percent to Rp 290 per cigarette. The smaller excise increase for mass-produced, hand-rolled clove cigarette is in consideration of the large numbers of Indonesians employed in that segment. 

With the adjustments, the excise target of Rp 120.5 trillion in the 2015 state budget will be met or even surpassed, according to the finance minister. The cigarette industry accounts for 95 percent of the government’s total excise income, which is estimated to reach Rp 111 trillion this year.

The adjustment in the cigarette excise has dealt another blow to the domestic cigarette industry this year. In June, President Yudhoyono introduced a government regulation requiring graphic warnings on cigarette packs.

Meanwhile, the domestic tobacco industry is slumping. The downturn is especially severe among mass-produced, hand-rolled clove cigarette segments, as consumers increasingly prefer machine-rolled cigarettes, prompting job losses.

Industry Ministry director general for agriculture and chemical industries Panggah Susanto said that the excise increase should not be placed on hand-rolled cigarettes due to concerns that it would lead to factory closures and the loss of more jobs.

“We hope the excise on hand-rolled cigarette remains unchanged. We still need the hand-rolled cigarette industry because it absorbs a sizeable number of workers,” he said recently. In May, Indonesia’s largest cigarette maker, PT HM Sampoerna, decided to close factories in Lumajang and Jember, East Java, affecting more than 4,000 workers.

The contribution of hand-rolled cigarettes to the Sampoerna brand, which is controlled by Philip Morris International Inc., plunged from 30.4 percent in 2009 to 23.1 percent last year, despite the company maintaining its position as market leader in the segment.

The excise increase will reduce cigarette consumption in the country, affecting the industry as a whole, according to Hasan Aoni Aziz, the secretary-general of the Association of Indonesian Cigarette Producers (GAPPRI).

“It is rough going [for the cigarette industry] these days,” he told the Post by phone on Friday.