Indonesia Rises Cigarette Tax by 23% in 2020

Average Selling Price to Rise 35 percent

President Joko Widodo agreed to increase the cigarette tax by 23 percent starting next year, said finance minister on Friday (09/13) - Photo: Special

JAKARTA (TheInsiderStories) – Indonesian President Joko Widodo agreed to increase the cigarette tax by 23 percent starting next year, said finance minister on Friday (09/13). The policy will make the average retail selling price of cigarettes expected to rise 35 percent from the current selling price.

“This will be conveyed at the finance ministerial decree for the average 23 percent tax rate and 35 percent for the selling price,” said Sri Mulyani Indrawati after a limited meeting at the Presidential Palace, Jakarta, adding the rule will effective starting Jan. 1, 2020.

She assured that with the new policy, the government could maintain the state revenues from tax sector. By the increasing the levy, she estimates that in 2020 the revenues from excises tax could reached Rp173 trillion (US$12.36 billion).

The reasoned the government take the decision, caused based on the ministry data, number of smokers increased among women from 2.5 percent to 4.8 percent at the end of last year. Similarly, smokers among children, up from 7 percent to 9 percent.

Director general of customs and excise at the ministry, Heru Pambudi, explained, that one of the goals of the cigarette excise tax policy was to reduce cigarette consumption among children. The ministry, he said, was aware that there were already symptoms of an increase in cigarette consumption among children in Indonesia.

According to him, the existence of cigarette excise duty will be able to reduce cigarette consumption at the community level. Because in the Customs records for the past 10 years, the number of cigarette consumption has decreased by 1.2 percent every year in line with the increase in excise duty on this product.

Immediately after the announcement, majority of cigarette stock ended in the red zone. PT HM Sampoerna Tbk (IDX: HMSP) weakened 0.71 percent or 20 points to Rp2,800 a share. Then, shares of PT Wismilak Inti Makmur Tbk (IDX: WIIM) dropped 0.95 percent to Rp208.

While, PT Bentoel International Investama Tbk (IDX: RMBA) eroded 2.86 percent at Rp340. Only shares of PT Gudang Garam Tbk (IDX: GGRM) closed up 0.77 percent at the level of Rp68,800 a share.

The trend of increasing cigarette excise tax rates also occurs in other hemisphere countries in the world. In fact, the increase in excise duty and the selling price of cigarettes has been more rapid in the Organization for Economic Cooperation and Development (OECD) countries.

The OECD reports that the total excise tax burden on cigarettes has reached 50 percent of the selling price to consumers in almost all OECD countries. “There are even eight countries with an excise tax of 80% of the price of cigarettes,” said the director Pascal Saint-Amans in the report.

Some of them are like France, Chile and Finland. Countries such as Luxembourg, Portugal, the Netherlands, and the United Kingdom also raised excise tariffs for tobacco products. In Australia, since July 1, tobacco importers are required to pay import duties and import taxes before goods can be entered and stored in warehousing (anti-tax avoidance).

US$1: Rp14,000

by Linda Silaen, Email: theinsiderstories@gmail.com