Warning on cigarette tax proposal

| August 16, 2016

A proposal in Indonesia to hike the excise tax on cigarettes might lead to an increase in the availability of illicit cigarettes, according to a story in The Jakarta Post citing a warning from an NGO.

The proposed tax increase would have the effect of pushing the retail prices of cigarettes from their current Rp15,000 (US$1.14) per pack to Rp50,000 per pack.

The Institute for Development of Economics and Finance director Enny Sri Hartati said the government should discuss the proposal thoroughly because the tobacco industry was strategic for Indonesia. It had contributed 96 percent of the state’s excise revenue and 11.7 percent of the state’s total revenue during 2015.

‘We need a more comprehensive study on the impact,’ Enny said in a press note on Monday. ‘It could actually hamper the industry, while at the same time lead to a state revenue shortfall. An excessive cigarette excise tax hike may lead to the increased circulation of illegal cigarettes.’

Enny cited a study by Gadjah Mada University that said the circulation of illicit cigarettes had increased by 11.7 percent after the government imposed a higher excise tax in 2014.

She recommended that the government boost revenue by imposing excise taxes on other goods, rather than on cigarettes.

Category: Breaking News

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