Excise Duty Rise Triggers Illegal Cigarettes
Monday, 20 November, 2006 | 22:00 WIB

Tempo Interactive, Jakarta: Ismanu Soemiran, Head of the Association of Indonesian Cigarette Producers, is of the opinion that cigarette excise duty rise to Rp10 per cigarette starting January 2007 will create financial losses for the state.

This is because, according to him, in addition to burdening small- and medium-scale cigarette producers, it will inflict losses on consumers.

Consumers will therefore change to buying illegal cigarettes which are sold at cheaper prices.

This will result in problems for small- and medium-scale producers.

In the end, the government will also suffer losses because of a deficit in excise duty revenues.

“The cigarette market is not yet recovered because of being affected by the flourishing illegal (smuggled) cigarettes,� Ismanu told Tempo yesterday (19/11).

In addition to small-scale cigarette manufacturers, he went on to say, producers of ordinary cigarettes (without clove filler) will be affected because the contents of each pack are more and are also more expensive.

“An ordinary cigarette pack usually contains 20 cigarettes on average,� he said.

As already reported, starting January the government will put into effect a cigarette excise duty rise, of which the nominal amount is directly set this time: Rp10 per cigarette.

Thus, he suggested the government raise cigarette retail sales prices by up to five percent instead of applying excise duty policy of Rp10 per cigarette.

His reason is by raising retail sales price by five percent, the state’s revenue target can still be reached.

On the other hand, there will be market penetration.

If the government still insists on raising excise tariff to Rp10 per cigarette, it will instead increase the amount of illegal cigarette sold.

Ismanu also said the government should support the cigarette industry with proper policies so that this sector can still be a goldmine for the state revenue, create wide job opportunities and encourage greater productivity in other economic sectors because local cigarette product content reaches 90 percent.

Fery Firmansyah
Jawawa.net: Indonesian Business and Investment News Aggregator