Update COVID-19 in Indonesia: 28,233 confirmed infections, 1,698 deaths (3 June 2020)
03 June 2020 (closed)
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The Finance Ministry of Indonesia will study whether the price of a package of cigarettes can be raised to IDR 50,000 (approx. USD $3.8), almost twice as high as the current average price of a package of cigarettes in Indonesia. The price hike would help the government to reduce a looming tax shortfall and discourage people from consuming their death sticks. The Tobacco Atlas estimates that there are 53.7 million active adult smokers and 2.6 million active youth smokers in Indonesia. Hence, Indonesia is the third-largest cigarette consumer (after China and Russia).
Not everyone agrees that higher cigarette prices will be a good move. The Indonesian Tobacco Society Movement (Gemati), for instance, stated that it will be the cigarette manufacturers who benefit from the move, while the tobacco farmers will not see higher income (as prices of raw materials are not expected to rise accordingly). Another concern is that the illegal cigarette industry in Indonesia can blossom if legal cigarettes become more expensive. In basically all fields Indonesia has difficulty to combat flows of illegal products due to the country's weak level of law enforcement.
Meanwhile, a survey conducted by the University of Indonesia's Public Health Faculty signals that some 72 percent of Indonesian smokers will quite smoking if the government raises the price of a package to IDR 50,000. Another interesting result from the survey is that 76 percent of respondents (consisting of around 1,000 Indonesian smokers) agree to a tobacco tax hike.
In the 2017 State Budget that the central government proposed to the House of Representatives (DPR), excise tax revenue collection is targeted at IDR 157.16 trillion (approx. USD $11.9 billion), up 6.12 percent (y/y) from the target set in the Revised 2016 State Budget. Most of this excise tax revenue collection originates from cigarette and other tobacco-related product sales. In the 2017 budget the government eyes IDR 149.88 trillion from the tobacco excise, up 5.78 percent of the target set in the 2016 budget.
In 2016 the tax shortfall of Indonesia is expected to reach IDR 219 trillion (approx. USD $16.6 billion) due to low commodity prices, weak exports, and sluggishly growing construction, trade and manufacturing sectors. However, it can also be stated that the government's tax revenue targets were far from realistic given the tough (global) macroeconomic circumstances.
In 2015, excise tax revenue realization of the Indonesian government stood at IDR 144.6 trillion (approx. USD $11 billion). The tobacco excise tax accounted for slightly over 96 percent of Indonesia's total excise tax revenue realization.
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).