Stakeholders in Indonesia’s cigarette manufacturing industry were not amused when the Indonesian government announced its plans to raise minimum prices of cigarettes and to increase the excise tax on tobacco products per 1 January 2020. Reportedly, the central government plans to raise the excise tax on tobacco products by an average of 23 percent, which will then raise the minimum price of cigarettes across categories by an average of 35 percent.

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Indonesia's tobacco production, prepared from the leaves of the tobacco plant, heavily depends on weather conditions. If weather conditions are normal in 2018, then Indonesia should be able to produce up to 200,000 tons of tobacco. However, if there occurs unconducive weather (a prolonged rainy season or short dry season), then it is difficult to predict Indonesia's 2018 tobacco production.

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Across the world the use of the electronic cigarette (e-cigarette), a habit that is often called vaping, has risen significantly since the introduction of the modern e-cigarette in 2003 (in China). Also in Indonesia more and more people are seen using the e-cigarette, a device that tries to create the sensation of tobacco smoking.

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The Industry Ministry of Indonesia still targets to see some limited growth in Indonesia's cigarette industry this year despite another excise tax hike per January 2018. Abdul Rochim, Director of Food & Beverages, Tobacco Products, and Refreshments at the Industry Ministry, acknowledged that Indonesia's cigarette industry has been under pressure in recent years but remains optimistic that it will not lead to another declining performance in Indonesia's cigarette industry in 2018.

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Indonesia will not only raise excise duties on tobacco products per January 2018 but it was also announced that the import tariff on tobacco will be raised as well. Although the exact amount remains unknown, Indonesian Coordinating Minister for Economic Affairs Darmin Nasution confirmed the step would be taken in 2018.

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At the start of 2018 the Indonesian government will again raise the excise tax on tobacco products (including cigarettes) in Indonesia. The tax will be raised by an average of 10.04 percent, effective per 1 January 2018. Traditionally, the government hikes the tobacco excise tax once per year in search of more tax revenue and to discourage consumption of tobacco products.

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Indonesian cigarette manufacturer Gudang Garam will raise prices of its tobacco products if the central government goes ahead with its plans to introduce another cigarette excise tax hike at the start of 2018. This statement was made by Gudang Garam Director Istata Siddharta.

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Not only looming higher excise taxes plague Indonesia's clove farmers but also bad weather is drastically curbing clove production in 2017. I Ketut Budiman, Secretary General of the Indonesian Clove Farmers Association (APCI), said clove production may only reach 11,000 tons this year. This would be a disastrous harvest. Under normal circumstances Indonesia produces more than 100,000 tons of clove in one year.

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Market share of HM Sampoerna, Indonesia's largest tobacco company, has declined. In the first half of 2017 the company's market share fell to 32.9 percent from 33.4 percent in the same period one year ago. Falling market share is related to the lower production volume of the company as well as falling cigarette consumption of the Indonesian people. HM Sampoerna is controlled by global cigarette giant Philip Morris International.

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Commission I of Indonesia's House of Representatives (DPR) plans to revise Law No. 32/2002 on Broadcasting by adding a full ban on the advertisement of tobacco-related products on television and radio. Indonesia's tobacco industry, a massive industry in Southeast Asia's largest economy, objects to this plan. This ban would also have a big affect on government revenue (excise duties on cigarettes are a key source of government revenue) as well as on revenue generated by media institution because tobacco companies are the fifth-largest advertiser in Indonesia.

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Shares of Gudang Garam, Indonesia's leading kretek (clove cigarettes) producer, surged 1.92 percent to IDR 79,500 on Friday (24/11). So far this year the company's shares, listed on the Indonesia Stock Exchange, have risen 24.4 percent. This is remarkable considering there are plenty of negative issues going on in Indonesia's cigarette industry.

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Every year Indonesia's Tax Office adjusts the excise tax on tobacco products. The adjustment is always made in consideration of the central government's tax revenue targets as well as the input of specific stakeholders (including pro-health lobby groups, or groups that defend the interests of tobacco manufacturers or farmers).

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Indonesian tobacco manufacturers continue to face big challenges this year amid fierce competition for market share and rising taxes (as well as other government measures that have been implemented with the aim to curb cigarette consumption, for example the setting of limits to advertisement content). Therefore, the corporate earnings of Indonesia's listed cigarette producers is expected to remain under pressure for the remainder of 2017.

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The tobacco and cigarette business in Indonesia is big business. Two tobacco companies are positioned within the top ten of largest companies listed on the Indonesia Stock Exchange (in terms of market capitalization) as there exists a huge market for cigarettes in Indonesia with some 65 percent of Indonesian men being smokers (due to Indonesia's socio-cultural context few Indonesian women smoke). Moreover, the Indonesian government seems unwilling to limit cigarette consumption (both active and passive smoking) among the population.

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Shareholders of the largest cigarette manufacturer of Indonesia, Hanjaya Mandala Sampoerna (HM Sampoerna), approved the company's plan to execute a 25-for-1 stock split. The move, aimed at making shares more affordable for retail investors thus boosting liquidity, will raise the company's total outstanding shares to 116.3 billion pieces. Since 2005 HM Sampoerna has been owned by international tobacco giant Philip Morris. The US-based company controls a 92.5 percent stake in HM Sampoerna.

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One of the last decisions of the Susilo Bambang Yudhoyono administration before being replaced by the new Joko Widodo-led administration was to raise the tobacco excise by an average of 8.7 percent per 1 January 2015. This excise will be applied to all tobacco-related manufactured products. The higher excise, stipulated by a Finance Ministry decree, will boost state income and will also help to curb smoking. About 65 percent of Indonesian men smoke, supported by the cheap price of a package of cigarettes.

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Widespread cigarette consumption among Indonesians (especially men) can have a negative impact on the country’s current demographic bonus. One of Indonesia’s strongpoints in terms of economic make-up is that it has a large and young, thus potentially productive, population. Indonesians in the productive age (15 to 64 years) outnumber those that are categorized as youth (below 15 years) and elderly (over 65 years). This large productive group should provide a boost to Indonesia’s economy in the next two decades.

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It is no secret that Indonesia's economy has been booming in recent years and is appearing more and more on the radars of foreign investors. In the 2000s it was the commodities sector that brought much profit for Indonesian companies that were engaged in the extraction of natural resources such as coal, palm oil, and rubber. The outbreak of the global financial crisis in the late 2000s, however, ended the commodities boom abruptly, while other sectors came to the fore as Indonesia's new gold mines.

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