Why Are Shares of Indonesia's Cigarette Manufacturers Soaring?

While the majority of shares listed on the IDX went downhill on the news that highly respected Sri Mulyani Indrawati was removed from her post at the Finance Ministry, tobacco companies in fact thrived. How is that possible?

Well, contrary to Sri Mulyani who was eager to raise excise tax rates on cigarettes and other tobacco products, Purbaya seems to be milder for the tobacco companies, stating that he will review the cigarette excise tax rates for 2026 (after scheduling a meeting with business associations). This then became a wave of fresh air for the share performances of Indonesian cigarette companies. Moreover, Purbaya stated that the government does not need to increase cigarette excise tax rates to boost state revenue.

Keeping the cigarette industry alive is among his ambitions, Purbaya stated. After all, if the domestic cigarette industry is killed, then it will only offer lucrative opportunities to cigarette manufacturers in China that ship their products to Indonesia.

Purbaya also confirmed his commitment to eradicate the circulation of illegal cigarettes in Indonesia by collaborating with several key digital marketplaces. This is one of the six "quick win" programs that is being prepared by the government. This would be welcome as it is estimated that around 20-30 percent of total cigarettes consumed across Indonesia are illegal products. In addition to monitoring digital transactions, the Finance Ministry is also tracking the illegal cigarette distribution chain from suppliers to small convenience stores. Furthermore, Purbaya revealed that supervision would also be tightened at import channels to close loopholes for fraud that could potentially reduce state revenue.

Six Quick Wins

Based on the government's plans, the six "quick win" programs being prepared to support the domestic cigarette industry and combat illegal trade are:

• Cracking down on illegal cigarettes by partnering with digital marketplaces to monitor and remove illegal cigarette sales online.
  
  
• Tightening import supervision by strengthening control over import channels to prevent fraud that could reduce state revenue and allow illegal products into the country.
  
  
• Reviewing excise tax rates, with a focus on not increasing it. The goal is to avoid overtaxing the domestic industry, which could make it uncompetitive.
  
  
• The Ministry of Finance aims to implement policies that support the growth of local cigarette companies and protect them from unfair competition, particularly from foreign-supplied illegal products.
  
  
• The government plans to enhance coordination between various agencies, including the Directorate General of Customs and Excise and law enforcement, to more effectively monitor and enforce regulations.
  
  
• Optimizing revenue without burdening the industry through programs that are designed to increase state revenue from excise taxes by broadening the tax base and ensuring better compliance, rather than by simply raising rates, which could hurt the industry's profitability.

Remarkable Share Performances

The remarkable share price movements that are visible in Table 1 indicate a very strong market expectation regarding the potential for a reduction in excise tax rates. This would then help the corporate earnings of these companies.

Table 1; Share Performance of Indonesian Listed Cigarette Producers:

Listed Cigarette Company	9 Sept. 2025	24 Sept. 2025	Change
Gudang Garam	IDR 8,900	IDR 14,825	+66.6%
HM Sampoerna	IDR 565	IDR 830	+46.9%
Wismilak Inti Makmur	IDR 810	IDR 1,310	+61.7%
Indonesian Tobacco	IDR 236	IDR 482	+104.2%

^{Source: Indonesia Stock Exchange (IDX)}

This is desirable considering these companies have been under pressure. For example, according to financial reports, Gudang Garam recorded a net profit of IDR 117.2 billion in the second quarter of 2025, which is a significant decline of 87.3 percent compared to the same period in 2024, when the company's net profit was IDR 925.5 billion. This sharp drop was primarily attributed to a decrease in revenue and a rise in operating expenses.

The share performance of listed cigarette manufacturers is very sensitive to issues related to excise tax rates due to the impact on corporate earnings. Markets were particularly concerned over 'tobacco shares' when Sri Mulyani was Finance Minister. During the 2016-2024 period excise tax increase for machine-made kretek cigarettes grew with a compound annual growth rate (CAGR) of 12.5 percent.

The Dilemma

The cigarette manufacturing industry can be labelled a controversial industry. On the one hand it is now commonly accepted that smoking has very negative consequences for the health of people (both for direct and indirect smokers), with in particular cardiovascular diseases being a real risk. But, on the other hand, the cigarette manufacturing industry is one of the most valuable industries within the Indonesian economy, creating employment opportunities for the local population and bringing in much-needed government revenue, specifically through (excise) taxes.

The Indonesian government has therefore been facing a dilemma: does it need to curtail the consumption of tobacco-related products in order to safeguard Indonesians’ health but missing out on additional tax income from the cigarette manufacturing industry? Or, does the government need to ‘encourage’ smoking, hence safeguarding plenty of employment opportunities in the cigarette manufacturing industry and allowing a lucrative flow of state revenue from this industry?

Indonesians Love Smoking

The Global Adult Tobacco Survey (GATS), an internationally recognized standard for monitoring adult tobacco use and tracking key indicators of tobacco control, provides crucial insights into Indonesia's persistent tobacco epidemic, revealing trends that underscore the urgent need for more robust public health interventions. The most recent GATS report from 2021 highlights a growing number of smokers and significant shifts in tobacco product consumption.

The 2021 GATS report revealed a concerning increase in the total number of adult smokers in Indonesia, reaching 69.1 million people, an increase of 8.8 million from a decade earlier. This surge in numbers stands in stark contrast to the global trend of decreasing tobacco use in many other countries. A significant aspect of this data is the gender disparity: while the overall prevalence of smoking is high, the vast majority of smokers are men, with 64.7 percent of adult males being smokers compared to just 2.3 percent of adult females. This highlights a cultural and social dynamic unique to Indonesia that requires targeted interventions.

Beyond the raw numbers, the GATS report also sheds light on evolving consumption patterns. The use of traditional kretek cigarettes remains dominant, but there has been a tenfold increase in the use of e-cigarettes. This new trend introduces a complex public health challenge, as these products often appeal to younger generations and are a newer area for regulation. The report also brought to light the significant socioeconomic impact of tobacco use, noting that cigarettes are the second-largest household expenditure for poor families, diverting funds that could be used for essential goods like food.

And so, in sum, there is some reason to become optimistic about the perspectives of Indonesia's cigarette manufacturing industry. There has been an increase in the number of smokers in Indonesia in recent years, while the government is currently in favour of the cigarette manufacturing industry.

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