JAKARTA (TheInsiderStories) – The Indonesian government has decided not to increase the excise tax on tobacco products for 2019. This comes as a surprise, as since the beginning of the 2015 the cigarette excise has always been increased by 10-15 percent per year.

Previously, finance ministry regulated the policy through the Finance Minister regulation (PMK) Number 146 Year 2017 concerning Tobacco Excise Tariffs. Followed the decision, on Dec. 12, Finance Minister signed PMK 156 year 2018 to amendmented PMK 146 Year 2017.

This regulation changes several provisions and comes into force on Jan. 1, 2019. There are a number of changes to the provisions, namely:

  1. There is no policy to increase tobacco excise rates or increase the minimum retail price limit, so that it still refers to Article 6 and 7 PMK 146 Year 2017.
  2. Added provisions regarding the limitation of the minimum retail sale price of other tobacco processing products so that it needs to change Chapter I General Provisions and Annex II of PMK 146 Year 2017.

The determination of the excise tariff policy considers certain aspects, namely controlling cigarette consumption, state revenues, labor, and eradicating illegal cigarettes, including political stability ahead of the general election.

Besides that, in compiling the excise policy, many parties had input, both in writing and meetings, and it is based on an evaluation of all input from the cabinet meeting.

During 2013–2018, the increase in excise rates and adjustments to tobacco’s retail prices have succeeded in controlling cigarette production with a decrease in production of 2.8 percent and increasing state revenues by 10.6 percent.

However, on the labor issues, the Government still needs to provide space for labor-intensive industries by maintaining the continuity of the stagnant workforce.

In 2019, the government will focus on efforts to eradicate the circulation of illegal cigarettes. It is intended that the legal cigarette industry can grow and fill the illegal market which in the end is expected to increase state revenues while maintaining the sustainability of the workforce.

In addition, excise intensification efforts are more optimized, in the form of imposition of excise on Other Tobacco Processing Products whose revenue performance in the last three months has reached more than Rp154.1 billion (US$10.63 million), so that the target of 2019 excise revenue is still achievable.

But the policy has the potential to disrupt the performance of state-revenues from next year’s excise duty of Rp165.5 trillion, which grows 6.43 percent from this currently achievement of Rp154.1 trillion.

The government actually relies on money from cigarette excise levies to support the finance of the Health Social Security Executing Agency, which has failed to treat patients with smoking-related illnesses such as heart disease and cancer of Rp8.78 trillion.

Funds from cigarette excise are an alternative source of funding for the National Guarantee Healthy-Indonesia Health Card program.

In addition, the government will also delay the planned merger of excise groups. That is, the government will continue to follow the structure of the excise tax policy in 2018, both in terms of selling prices, retail and in terms of grouping.

Meanwhile, the Indonesian Cigarette Association appreciates the government’s decision to maintain cigarette excise rates for next year. The Organization assessed that the government’s policy of raising cigarette excise rates by around 10 percent as planned has the potential to make the industry panic and become agitated.

Moreover, cigarette production is somewhat sluggish from year to year. Last year cigarette production fell by around 1 percent. This year and next year can also go down again due to the economic downturn.

As we know, the cigarette industry is a labor intensive industry. Based on data from the Ministry of Industry, this industry employs 6.1 million workers. On the one hand, the stabilization of cigarettes is the second most important component after rice in calculating the poverty rate of the community.

US$1: Rp14,500

Written by Daniel Deha, Email: theinsiderstories@gmail.com