Indonesia raises cigarette excise tax by 10.5% for 2017

[JAKARTA] Indonesia will raise its cigarette excise tax by an average of 10.5 per cent next year to safeguard the health of the public, the finance minister said on Friday.

The planned tax increase will follow a 11.3 per cent rise this year, and the government will also intensify its crackdown on the illegal circulation of cigarettes, Sri Mulyani Indrawati told reporters.

"Cigarettes are a commodity that can harm the health of the people, so their distribution needs to be limited," the former World Bank managing director said. "Excise taxes are a way to limit that."

Cigarette excise taxes currently contribute 10-12 per cent to the state budget, compared with 11.68 per cent last year and 12.29 per cent in 2014, according to the finance ministry.

Indonesia is one of the world's fastest-growing markets for tobacco products, with about US$16 billion of cigarettes sold last year, an increase of 13 per cent from 2014, says market research firm Euromonitor International.

Part of the reason for that growth is the relatively cheap price of cigarettes in the country with the world's fourth-largest population, where two-thirds of men are estimated to be smokers.

A pack of Marlboros sells for around 25,000 rupiah (S$2.60) in Jakarta, compared with S$13 in Singapore and US$13 in New York.

Indonesia's biggest cigarette makers are Philip Morris-controlled PT Hanjaya Mandala Sampoerna Tbk, PT Gudang Garam Tbk and privately held Djarum Group.

It is unclear how much of the latest tax increase will be passed on to consumers. Sampoerna, Gudang Garam and Djarum did not immediately respond to requests for comment.

Indonesia's tobacco industry has also come under attack from human rights and health lobby groups.

Earlier this year, New York-based Human Rights Watch said in a report that several big companies lack procedures to screen out tobacco that involves the effort of children working in hazardous conditions.

REUTERS