A three-fold hike in cigarette price may boost illegal products: Indef

Arif Gunawan Sulistiyono

A motion to increase the cigarette price by more than three-fold from the current Rp 15,000 (US$1.14) to Rp 50,000 per pack, may lead to a more massive circulation of illegal cigarette, a non-government organization (NGO) has warned.

Meanwhile, tobacco has become one of strategic industry for Indonesia, contributing 96 percent of excise revenue for the state last year worth Rp 139.5 trillion. In total, the industry provided 11.7 percent of the state revenue in 2015.

Institute for Development of Economics and Finance (Indef) director Enny Sri Hartati said the government must be wise enough before accommodating the motion to increase the selling price of cigarette.

"We need a more comprehensive study on the impact. It could be contradictive as it may hamper the industry while at the same time lead to a shortfall in the state revenue. An excessive hike in the cigarette excise tax is potentially leading to an increase in illegal cigarette circulation," she said in a press statement on Monday in Jakarta.

To further strengthen her argument, Enny cited a study by Gadjah Mada University showing that the circulation of illegal cigarette had increased by 11.7 percent after the government imposed a higher excise tax for the product in 2014.

Therefore, she recommended the government to extend the revenue by imposing excise tax to more varied goods instead of increasing cigarette tax. “Indonesia is among countries that imposes excise tax for only a few goods. Singapore and the Philippines each impose excise taxes to five goods, India to eight goods, and Thailand to 11 goods.” (ags)