The Minister of Finance of the Republic of Indonesia has ratified Minister of Finance Regulation (PMK) Number 198/PMK.010/ 2020 concerning tobacco products excise on December 14, 2020 which is scheduled to take effect on February 1, 2021. The regulation amends several articles of the Regulation, namely PMK Number 152 /PMK.010/2019. The main changes are in the increase of tobacco products excise which is contained in Appendix II and Attachment III of PMK Number 198/PMK.010/2020 and this has become the most highlighted discussion by the public in recent weeks.
This is certainly a good news for those who dream a smoke-free environment. Based on truthinitiative.org research, smoking can cause more than 1,300 deaths every day and can cause heart disease, respiratory disease, and cancer. What's more, tobacco use not only results in health problems for individual smokers but also affects the environment, economy and health of non-smokers through passive smoking. The high cigarette excise tax is considered to make the purchase price of cigarettes more expensive and the public's consumption of cigarettes to decrease. Positive responses have also come from the Indonesian Child Protection Agency, which supports the Government to increase cigarette excise taxes consistently every year to prevent adolescents from easily buying cigarettes.
However, there are also opposite responses namely from cigarette industry and tobacco farmers. Reporting from several national news pages, the Indonesian White Cigarette Manufacturers Association and the Indonesian Cigarette Manufacturers Association expressed their objection to the increase of tobacco products excise by the Government amid the the COVID-19 pandemic. Such is considered unnatural because currently the purchasing power of consumers in the tobacco industry is weakening and industry volume could decline significantly if this continues. The National Leadership Council of the Indonesian Tobacco Farmers Association also stated that the policy to increase cigarette excise taxes caused farmers to suffer losses due to less competitive prices.
Based on the statement of the Minister of Finance, Sri Mulyani, at a press conference on Cigarette Excise Policy broadcasted on the Ministry of Finance's official YouTube channel on December 10, 2020, such increase supports the vision and mission of the President of Indonesia to realize advanced human resources. The government has first considered various aspects that are directly related to tobacco products increase including the health impacts of cigarette consumption, the welfare of the workforce of cigarette factory workers and tobacco farmers, the economic conditions in the tobacco processing industry which is still affected by the COVID-19 pandemic, as well as the rise production and distribution of illegal cigarettes due to cigarettes increasing price. To that end, the Ministry of Finance will synergize with other Ministries to oversee the implementation of PMK Number 198/PMK.
Even though it did not simplify by combining groups of tobacco products, the Government gave a positive signal by reducing the difference in the tariff gap between tobacco product groups excluding the Hand-made Kretek Cigarettes as considered to be labour-intensive industries. The following are details of the increase in several excise rates for domestic tobacco products per stem or gram contained in PMK 198/2020 when compared to PMK 152/PMK.010/2019.
1. Machine Kretek Cigarettes
- Category I, increased from IDR125 or 16.9% to IDR865
- Category II A, increased from IDR 65 or 13.8% to IDR535
- Category II B, increased from IDR 70 or 15.4% to IDR525
2. Machine White Cigarette
- Category I, increased from IDR145 or 18.4% to IDR935
- Category II A, increased from IDR 80 or 16.5% to IDR565
- Category II B, increased from IDR85 or 18.1% to IDR555
3. Filter Hand Kretek Cigarette or Filter Hand Kretek Cigarette
- No Group, increased from IDR125 or 16.9% to IDR865
The increase in excise rates also applies for imported tobacco. The amount of the increase in excise tax on tobacco products per stem or gram is detailed as follows:
- Machine Kretek Cigarettes increased from IDR125 or 16.9% to IDR865
- Machine White Cigarette increased from IDR145 or 184% to IDR935
- Filter Hand Kretek Cigarette or White Filter Hand Cigarette, increased from IDR125 or 16.9% to IDR865
The Government estimates that the affordability index of cigarette purchases will increase from 12.2% to 13.7% - 14% thus cigarettes purchasing pattern will decrease. The government hopes that this can reduce the prevalence of smoking in general from 33.8% to 33.2% in 2021 and reduce the smoking prevalence of adolescents aged 10-18 years to 8.7% in 2024. The government is also targeting state revenue of IDR173, 78 trillion in 2021 from tobacco products excise.
Following up the negative response, the government has promulgated PMK Number 206/PMK.07/2020 concerning Tobacco Excise Production Sharing Funds (on December 18, 2020 and established a policy for the establishment of the Tobacco Industrial Zone. The provision is aimed to fund activities in the field of public welfare (50%), law enforcement (25%), and health (25%). In addition, the Government also provides facilities for postponing payment of excise stamps for company’s domestic sales to encourage companies to export rather than circulating cigarettes domestically.
