The government of Indonesia is still discussing whether to raise the excise tax for cigarettes. This hike would help the government to reduce its looming tax and budget shortfall in 2016, while discouraging people from consuming the notorious "death sticks". Last week it was reported that the government might even raise the price of a package of cigarettes from around IDR 20,000 to IDR 50,000 per pack. However, this is most likely a false rumor as such a drastic hike would in fact jeopardize state revenue, jobs in the tobacco-related sectors and would also give rise to a blossoming illegal cigarette market. In 2015 cigarette prices had already risen by an average of 11 percent.

Balancing between the safeguarding of high state income (from the tobacco excise) and protecting people's health is key for the government. This year the government targets to gain IDR 140 trillion (approx. USD $10.6 billion) from the cigarette excise. As such, cigarettes account for about 95 percent of total excise income for the Indonesian government in 2016. This illustrates the importance of the cigarette industry in terms of state revenue. In 2017 the government targets to raise IDR 150 trillion worth of cigarette excise.

On the other hand, having a big population that is addicted to cigarettes also gives rise to economic costs for the government, particularly now it is serious to expand its universal healthcare program. Smoking-related physical illnesses (such as heart diseases) cause costs that need to be carried by the government and society. Meanwhile, having many ill people also implies that Indonesia does not make optimal use of its human resource potential.

To protect the millions and millions of passive smokers in Indonesia, authorities should undertake more efforts to encourage smoke-free areas in buildings and public facilities (both indoor and outdoor). On the other hand, the domestic tobacco industry should be able to boost production of cigarettes for export purposes. Falling domestic cigarette consumption but boosting cigarette exports (trying to become the cigarette production hub of the Asia Pacific) would be a win-win solution for Southeast Asia's largest economy.

Read more: Matthew Myers: Indonesia Not Protected from the Dangers of Smoking

The tobacco industry is one of the largest industries in Indonesia, reflected by the fact that two cigarette manufacturing companies are positioned within the top ten of largest Indonesian companies (in terms of market capitalization) listed on the Indonesia Stock Exchange. The main reason is that there exists a huge market in Indonesia, while the government has not been eager to implement measures that aim at curtailing tobacco consumption in society. For example, Indonesia is one of the few Asian countries that is yet to ratify the World Health Organization (WHO)’s Framework Convention on Tobacco Control (FCTC).

All the above-mentioned matters need to be considered when creating a new roadmap for Indonesia's tobacco industry.

Facts about Smoking in Indonesia

  • There are about 91 million (active) smokers in Indonesia (roughly 36 percent of the population)
  • About 70 percent of Indonesian smokers are part of the poorer segments of Indonesian society. These poor families spend about 12 percent of their disposable income on cigarettes (making these death stick the second-most popular item for low-income families, after rice). A price hike would discourage the men in these families to purchase cigarettes
  • Every day an average of 1,172 people die because of smoking-related illnesses
  • Some IDR 7 trillion or approximately 30 percent of funds that are available to Indonesia's National Health Insurance (Jaminan Kesehatan Nasional, or JKN) program are spent to combat tobacco-related diseases
  • In Indonesia the cigarette excise is still relatively low at a maximum of 57 percent; abroad this maximum is 80 percent. Therefore, Indonesian cigarettes remain among the cheapest worldwide and thus tempting for consumers